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Another utilization of cash flow analysis is setting the bid price on a project. To calculate the bid price, we set the project NPV equal to zero and find the required price. Thus the bid price represents a financial break-even level for the project. Guthrie Enterprises needs someone to supply it with 142,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It will cost you $1,820,000 to install the equipment necessary to start production; you’ll depreciate this cost straight-line to zero over the project’s life. You estimate that in five years this equipment can be salvaged for $152,000. Your fixed production costs will be $267,000 per year, and your variable production costs should be $8.70 per carton. You also need an initial investment in net working capital of $132,000. If your tax rate is 35 percent and you require a return of 12 percent on your investment, what bid price per carton should you submit?
Because of the recession, the inflation rate expected for the coming year is only 3%. However, the inflation rate for yer 2 and thereafter is expected to be constant at some level above 3%. Assume that the real risk-free rate is r* = 2% for all matur..
Holly & Daughters, Inc. knows it will need to begin making an investment in training its employees in order to stay current on technological advances. The company anticipates it will send several employees to specialized training each year for the ne..
What is the expected return of the portfolio if the market risk premium is 7.8% and the risk-free rate is 3.6%?
what is the value of the investment 3 years from today (immediately after the cash flow at "year 3" occurs)?
The bonds of B&C, Inc. are currently priced at $ 819.62 and have a 13.23 percent coupon. The bonds pay interest semi-annually and mature in 12 years. What is the current yield, in percentage, on these bonds? An AT&T bond has 22 years until maturity, ..
$200,000 of 6%, 25-year bonds were sold for $190,000 on January 1. The bonds require semi annual interest payments on June 30 and December 31. What is the journal entry to record the June 30 interest payment on the bonds?
Find the market price of the bond if the yield rate is 2% compounded semiannually.
Assume the returns on an asset are normally distributed. Suppose the historical average annual return for the asset was 6.7 percent and the standard deviation was 12.6 percent. What is the probability that your return on this asset will be less than ..
John Smith's broker has shown him two bonds. Each has a maturity of 4 years, a par value of $1,000, and a yield to maturity of 13%. Bond A has a coupon interest rate of 7% paid annually. Bond B has a coupon interest rate of 15% paid annually. John ha..
"Para-phrasing" involves. An argument, regardless of length, should have all the following EXCEPT
YIELD TO MATURITY A firm's bonds have a maturity of 9 years with a $1,000 face value, have an 7% semiannual coupon, are callable in 5 years at $1,200, and currently sell at a price of $1,150. What are their nominal yield to maturity?
The Horizon Company just paid a dividend of $.75 per share, and that dividend is expected to grow at a constant rare of 5.50% per year in the future. The company's beta is 1.15, the market risk premium is 8%, and the risk-free rate is 2.00%. What is ..
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