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Sam wants to start a small commercial bakery to supply gourmet deserts to local restaurants. He believes that with his product line and his connections in the restaurant business, he can grow the business over the next five years into a profitable niche player in the pre-made food supply business. Sam projects the following cash flows (after any necessary reinvestment in the business):
Year 1 $250,000
Year 2 $500,000
Year 3 $750,000
Year 4 $1,000,000
Year 5 $1,250,000
Sam thinks the increase in profits will peak in about year six at $1.5 million, and that after that, they will grow at about 5% per year.
Sam is going to put up half the money and an investor associate is putting up the other half. This investor puts money into a lot of early stage companies, and he usually expects to make about 35% returns.
Sam figures that once the business matures, he and the investor should only expect to make about 18% on the business, as that is similar to what some small publicly traded commercial bakeries make.
Using discounted cash flows (including the terminal value), what is the net present value of Sam’s business?
Flp has 7% annual coupon bonds outstanding with 30 years let until maturity. The bonds have a face value of 1,000 and their current market price is 1,145.92. What is the yield to maturity on flp's bond?
A project has the following estimated data: price = $66 per unit; variable costs = $43 per unit; fixed costs = $16,500; required return = 8 percent; initial investment = $25,000; life = five years. Ignoring the effect of taxes, the accounting break-e..
Aloha Inc. has 6 percent coupon bonds on the market that have 9 years left to maturity. If the YTM on these bonds is 7.6 percent, what is the current bond price?
Ten years ago the Singleton Company issued 22-year bonds with a 10% annual coupon rate at their $1,000 par value. The bonds had a 9% call premium, with 5 years of call protection. Today Singleton called the bonds. Compute the realized rate of return ..
Papier Nouveau, a distributor of commercial printing supplies. As the Director of HR for Papier Nouveau, you are responsible for calculating monthly incentives.
The last dividend paid by Klein Company was $2.00. Klein’s growth rate is expected to be a constant 4 percent for 2 years, after which dividends are expected to grow at a rate of 6 percent forever. Klein’s required rate of return on equity (ks) is 8 ..
Filer manufacturing has 8 million shares of common stock outstanding. The current share price is $87, and the book value per share is $6. Filer manufacturing also has two bond issues outstanding. The first bond issue has a face value of $75 million a..
You are currently working at a mid-sized certified public accounting firm. Your client is Bob Jones. Bob, age 60 and single, has recently retired from IBM. Differentiate between accrual accounting and cash basis. Based on the type of business and the..
Analyze the balance sheet, income statement and statement of cash flows for the company. Your analysis should be two paragraphs in length
In the Industrial Supply Company example (Table 4.4) it was assumed that the company’s fixed assets were being used at nearly full capacity and that net fixed assets would have to increase proportionately as sales increased.
Opportunities for influencing the outcome of reported earnings.
Debra deposited $1000 five years ago in an account that paid 4% annually. But three years ago she moved her money to a different account that pays 5% compounded semi annually. How much does she have in her account now?
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