Reference no: EM131309652
We are examining a new project. We expect to sell 6,000 units per year at $74 net cash flow apiece for the next 10 years. In other words, the annual cash flow is projected to be $74 × 6,000 = $444,000. The relevant discount rate is 18 percent, and the initial investment required is $1,710,000. After the first year, the project can be dismantled and sold for $1,540,000. Suppose you think it is likely that expected sales will be revised upward to 9,000 units if the first year is a success and revised downward to 4,600 units if the first year is not a success. Suppose the scale of the project can be doubled in one year in the sense that twice as many units can be produced and sold. Naturally, expansion would only be desirable if the project were a success. This implies that if the project is a success, projected sales after expansion will be 18,000. Note that abandonment is an option if the project is a failure.
If success and failure are equally likely, what is the NPV of the project? (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).)
NPV $
What is the value of the option to expand? (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).)
Option value $
|
What is the firm cost of preferred stock financing
: Home Depot needs to estimate the cost of financing on preferred stock. The firm has preferred stock outstanding that pays a constant dividend of $3.35 per year. That preferred stock is currently selling for $79.36. However, the underwriter would char..
|
|
An example of collateralized bond
: An example of a collateralized bond is: Which of the following is a secondary market transaction?
|
|
Market-neutral hedge fund manager
: You invested $1,250,000 with a market-neutral hedge fund manager. The fee structure is 2/20, and the fund has a high-water-mark provision. Suppose the first year the fund manager loses 7 percent, and the second year she gains 21 percent.
|
|
Financial break-even point units
: Niko has purchased a brand new machine to produce its High Flight line of shoes. The machine has an economic life of five years. The depreciation schedule for the machine is straight-line with no salvage value. What is the financial break-even point?
|
|
Annual cash flow is projected
: We are examining a new project. We expect to sell 6,000 units per year at $74 net cash flow apiece for the next 10 years. In other words, the annual cash flow is projected to be $74 × 6,000 = $444,000. The relevant discount rate is 18 percent, and th..
|
|
Calculate the discount rate consistent with a cap rate
: Calculate the discount rate consistent with a cap rate of 12 percent and a growth rate of 6 percent. Show how your answer would change if the cap rate dropped to 10 percent while the growth rate declined to 5 percent.
|
|
What is before-tax cost of capital for debt financing
: Black Hill, Inc. sells $100 million worth of 26-year to maturity 14.41% annual coupon bonds. The net proceeds (proceeds after flotation costs) are $1022 for each $1,000 bond. What is the before-tax cost of capital for this debt financing?
|
|
What is the annual carrying costs of post card inventory
: Cheeseburger and Taco Company purchases 9,165 boxes of cheese each year. It costs $12 to place and ship each order and $8.70 per year for each box held as inventory. The company is using Economic Order Quantity model in placing the orders. What is th..
|
|
Economic order quantity model in placing the orders
: Cheesburger and Taco Company purchases 17,188 boxes of cheese each year. It costs $19 to place and ship each order and $3.28 per year for each box held as inventory. The company is using Economic Order Quantity model in placing the orders.
|