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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 143,000 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 $1,830,000 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 $153,000. Your fixed production costs will be $268,000 per year, and your variable production costs should be $8.80 per carton. You also need an initial investment in net working capital of $133,000. If your tax rate is 38 percent and you require a 14 percent return on your investment, what bid price per carton should you submit?
A share of stock is now selling for $115. It will pay a dividend of $9 per share at the end of the year. Its beta is 1. What do investors expect the stock to sell for at the end of the year? Assume the risk-free rate is 5% and the expected rate of re..
Treasury bonds paying an 10.25% coupon rate with semi-annual payments currently sell at par value. What coupon rate would they have to pay in order to sell at par if they paid their coupons annually?
Assume that the risk-free rate is 7% and the expected return on the market is 12%. What is the required rate of return on a stock with a beta of 2.4? Round your answer to two decimal places.
The Board of Directors of BesTaste, a medium size company, wants catering business that has been growing over the past six years. The local authority has permission to extend its current premises. The company granted the business assets. Explain whic..
Eli Lily is very excited because sales for his nursery and Plant Company are expected to double from $600,000 to $1,200,000 next year. Eli notes that net assets (assets-liabilities) will remain at %50 of sales. His firm will enjoy an 8 percent return..
You need a 30-year, fixed-rate mortgage to buy a new home for $225,000. Your bank will lend you the money at an APR of 5.5 percent with monthly compounding. You can only afford monthly payments of $1,000 for principal and interest, so you offer to pa..
Consider two investments that you can make. You can either buy a share of stock in a company that will pay a dividend of $ 10 every year into the foreseeable future, or a buy a special type of bond that will start paying the same $ 10 in one year, an..
Agencies such as Moody’s, Fitch, and Standard and Poor’s rate the default risk of various municipal and corporate bonds. While their rating systems are proprietary, it is widely known that they rely on financial ratios as key inputs to their bond rat..
Haswell Enterprises' bonds have a 10-year maturity, a 6.25% semi annual coupon, and a par value of $1,000. The going interest rate (rd) is 9.75%, based on semi annual compounding. What is the bond's price?
5-3 Future Value of an Annuity What is the future value of a $900 annuity payment over five years if interest rates are 8 percent? (LG5-2)
sudson washer and dryer service is in the business of leasing used washers and dryers to apartment landlords for a
For a certain period a bond amortization schedule shows that the amount for amortization of premium is $5 and that the required interest is 75% of the coupon. Find the amount of the coupon.
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