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1. After extensive prototype development and test marketing, TechElectro plc believes it can penetrate the smart watch market. The firm is considering two alternative products. The first is TECH7 with built - in wifi. The second is TECH8 with both wifi and 4G. TECH7 would be introduced at a price of £400 per watch while TECH8 will be sold at £350 per watch . TECH7 is projected to sell 5 00 0 pieces a year, whereas TECH8 would sell 10,000 pieces a year. Cash costs of production are expected to be £150 per watch for TECH7 which for TECH 8 are exp ected to be £170. Both products require furth er investment; TECH7 could be produced using new equipment costing £1 million. That equipment would last 3 years and have no resale value. The machinery required to produce TECH8 would c ost £1 . 2 million and last 3 years. The firm expects th e equipment for TECH8 to have a £ 1 0 0, 000 resale value at the end of year 3. The firm uses the reducing balance (20 % ) depreciation. The firm faces a corporate tax rate of 24 % and believes that the appropriate discount rate is 13 %. By comparing the Net Present Value (NPV) for both projects, suggest which model of watch should the firm produce?
2. TechElectro , in the above question, is also considering another project. The project calls for a major renovation of the company’s manufacturing facilities. The initial investment in the project is £5million while the incremental cash inflow s in the first year are £1 .5 million. Cash inflows are expected to increase by 10 % every year for the next 3 years of the project ’s expected life. T he risk of this project is higher than other projects and it is suggested that a 2% risk premium should be added to the cost of capital u sed for other projects . Calculate the Internal rate of return (IRR) to evaluate the project and indicate whether the project should be accepted or not.
Lewis Securities Inc. has decided to acquire a new market data and quotation system for its Richmond home office. The system receives current market prices and other information from several online data services and then either displays the informati..
In 1998, Long-Term Capital Management (LTCM), a prestigious hedge fund, made highly leveraged bets on the spread between U.S. Treasuries and corporate bonds.
At what rate have sales been growing? Suppose someone made this statement: "Sales doubled in 5 years.
What is the yearly interest rate being offered by the dealer (to the customer) in %?
Stephenson Real Estate Company was founded 25 years ago by the current CEO, Robert Stephenson. The company purchases real estate, including land and buildings, and rents the property to tenants. Suppose Stephenson decides to issue debt to finance the..
Neal Enterprises has no debt. Its current total value is $72 million. Assume the company sells $33 million in debt. Ignoring taxes, what is the debt-equity ratio? Assume the company’s tax rate is 32 percent. What is the debt-equity ratio?
Whited Inc.'s stock currently sells for $35.25 per share. The dividend is projected to increase at a constant rate of 4.75% per year. The required rate of return on the stock, rs, is 11.50%. What is the stock's expected price 5 years from now?
Calculate original loan balance.
The before-tax cost of debt is 12%, the cost of retained earnings is 15%, and the tax rate is 40%. What is this company's WACC?
The current spot exchange rate is 109.43 (in Yen). A particular commodity sells for $5,000 in the Unites Sates and 600,000 (in Yen) in Japan. Does the law of one price hold? If not explain how to profit through arbitrage. Taking the commodity prices ..
What is the value of this investment?
you are a data analyst with john and sons company. the company has a large number of manufacturing plants in the united
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