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Desai Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years, it will be depreciated on a straight-line basis, and there will be no salvage value. This is just one of many projects for the firm, so any losses can be used to offset gains on other firm projects. What is the project's expected NPV? WACC 10.0% Net investment cost (depreciable basis) $200,000 Units sold 48,000 Average price per unit, Year 1 $25.00 Fixed op. cost excl. depr. (constant) $150,000 Variable op. cost/unit, Year 1 $20.20 Annual depreciation rate 33.333% Expected inflation rate per year 5.00% Tax rate 40.0%
Steve Short wants to set up a fund to pay for his daughter's education. In order to pay her expenses, he will need $23,000 in four years, $24,900 in five years, $26,000 in six years, and $27,400 in seven years. If he can put money into a fund that pa..
Common stock X pays a dividend of $100 at the end of the first year, with each subsequent annual dividend being $10 more than the preceding one. Alice purchases the stock at a theoretical price to earn an expected annual effective yield of 10%. Immed..
What is cost of equity and how does it function in the cost of capital? To increase a firm’s value, results should show your WACC is moving in which direction? What are those skills?
Options and futures contracts are two types of derivative investments. Which of the two would you rather invest in and why? Make sure to discuss the major differences between the two as part of your answer.
Harrison Corporation is interested in acquiring Van Buren Corporation. Assume that the risk-free rate of interest is 5% and the market risk premium is 7%. If Harrison were to acquire Van Buren, what would be the range of possible prices that it could..
Rexton Oil is an all-equity firm with 100M shares outstanding. Rexton has $150M in cash and expects future free cash flows of $65M per year. Management plans to use the cash to expand the firm's operations, which will in turn increase future cash fre..
The market value of the equity of Thompson, Inc., is $780,000. The balance sheet shows $51,200 in cash and $248,100 in debt, while the income statement has EBIT of $109,100 and a total of $180,700 in depreciation and amortization. What is the enterpr..
Pension plans characterized by only what will be contributed to the plan is a(n) _____ plan.
Compute the current and quick ratios for each of the three companies. (Round calculations to two decimal places.) Which firm is the most liquid? Why?
All else equal an increase in beta results in? an increase in the cost of retained earnings an increase in the cost of common equity whether or not the funds come from retained earnings or newly issue common stock an increase in the cost of newly iss..
Why should a firm invest its idle cash? How to invest the idle cash and what's credit management? What's the optimal credit policy?
A prestigious investment bank designed a new security that pays a quarterly dividend of $5.00 in perpetuity. The first dividend occurs one quarter from today.
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