Assume annual compounding

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1. A firm is considering the purchase of a machine which would represent an investment of $26 million, and would be depreciated in a straightline basis over 6 years. Sales are expected to be $14 million per year, and operating costs 49% of sales. The company is currently paying $2 million in interest per year, has a tax rate of 40%, and a WACC of 10%. What is the company’s free cash flow for year 1 of this project?

2. You now have $9101. At what annual interest rate would you have to invest this money so you can double it in 8 years? Assume annual compounding.

3. A buyer will purchase handbags at a cost of $37.75 and the planned MU% for the department is 62.0%. What is the minimum retail price for each handbag? What possible retail price for each handbag might be used if you were the buyer of a department for? An off-price retailer?

Reference no: EM131947476

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