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(Calculating free cash flows) At present, Solar tech Skateboards is considering expanding its product line to include gas-powered skateboards, howeverit is questionable how well they will be received by skateboarders. While you feel there is a 60 percent chance you will sell 10,000 of these per year for 10 years (after which time this project is expected to shut down because solar powered skateboards will become more popular, you also recognize that there is a 20 percent chance that you will only sen 3000 and also a 20 percent chance you will sell 13,000. The gas skateboards would sell for $100 each and have a variable cost of $40 each. Regardless of how many you sell, the annual taxed costs associated with production would be $160,000. In addition, there would be a $1,000,000 initial expenditure associated with the purchase of new production equipmentIt is assumed that this initial expenditure win be depreciated using the simplied straight-down to zero over of the number of stores that will need line method 10 years because inventory, the working capital requirements are the same regardless of the level of sales, and this project will require a onetime initial investment of $50,000 in net working capital, and that working capital investment will be recovered when the project is shut down Finally, assume that the firm's marginal tax rate is 34 percent. a. What is the initial outlay associated with the project? B . what are the annual tree cash flows associated with the project for years 1 through 9 under each sales forecast? What are the expected annual free cash flows for years through 97 c. What is the terminal cash now in year 10 (that is, what is the tree cash now in year 10 plus any additional cash flows associated with the termination of the project? d, using the expected tree cash flows, what is the projects NPV given a 10 percent required rate of return? What would the projects NPV be if 10,000 skateboards were sold?
What is the current yield of the bond today?
Assume that r* = 1.0%; the maturity risk premium is found as MRP = 0.1%(t - 1) where t = years to maturity; the default risk premium for Corporate bonds is found as DRP = 0.06% (t - 1); the liquidity premium is 0.80% for corporate bonds; and inflatio..
Burton Corp. is growing quickly. Dividends are expected to grow at a rate of 32 percent for the next three years, with the growth rate falling off to a constant 6.2 percent thereafter. If the required return is 14 percent and the company just paid a ..
Which of the following statements about warrants and convertibles is TRUE?
In general, the cost of debt capital is lower than the cost of equity capital.
Rewash Inc., would like to purchase a machine at a cost of $175,000 with a life of 6 years. Their bank is ready to finance 90% of the machine at a rate of 6% per year compounded weekly if Rewash agrees to a payment of $1,300 per month and the remaini..
The current price of silver is $30 per ounce. Assume that the storage cost is zero. The 3-month interest rate is 4% per annum (with continuous compounding). A CME silver futures contract is current trading at $28 (per ounce) will mature in three mont..
Dennis Dunkwright is a former NBA player and free spirit whose face and unusual antics are well known to young Americans across the land.- What would be the expected value of a perfect forecast for the future behavior of their potential new spokespe..
the weighted avg. cost of capital is equal to B/S(Rs)(1-Tc), the cost of equity for an all-equity firm is less than the cost of equity for levered firm. the cost of levered equity is indirectly related to beta. the discount rate for levered equity is..
A city is about to construct a new sports arena. It will use a Capital Projects Fund to account for the accumulation of resources to build the arena.
Patton Paints Corporation has a target capitol structure of 60% debt and 40% common equity, with no preferred stock. It's before-tax cost of debt is 12% and it's marginal tax rate is 40%. The current stock price is $22.50. The last dividend was D0=$2..
BCC Golf Co. uses titanium in the production of its specialty drivers. BCC anticipates that it will need to purchase 200 ounces of titanium in November 2014, for clubs that will be shipped in the spring and summer of 2015. However, if the price of ti..
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