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1.)A proposed new project has projected sales of $85K, costs of $43K, and depreciation expense of $3K. All figures are annual figures. The tax rate is 35%. Calculate annual operating CF for this project.
a. $27,300
b. $14,700
c. $42,000
d. $28,3502.)For the prior problem, calculate how many dollars of tax expense are "saved" each year because of the depreciation expense.
The Omega Corporation has some excess cash that it would like to invest in marketable securities for a long-term hold. Its Vice-President of Finance is considering three investments: (a) Treasury bonds at a 7 percent yield; (b) corporate bonds at a 1..
State of Nature Probability Return on A Return on B I 0.4 6% 11% II 0.2 9% 6% III 0.4 12% 15% The correlation between A and B is 0.35. The portfolio weight of A is 25%. The portfolio weight of B is 75%. 22.value: The expected return in percent for in..
An all-equity firm is subject to a 30% tax rate. Its total market value is initially $3,500,000, and there and 175,000 shares outstanding. The firm announces a program to issue $1 million worth of bonds at 10% interest and to use the proceeds to buy ..
What is the present value of the following payment stream, discounted at 8% annually; $1000 at the end of year 1, $2000 at the end of year 2, and $3000 at the end of year 3?
After completing its capital spending for the year, Carlson Manufacturing has $2,500 extra cash. Carlson’s managers must choose between investing the cash in Treasury bonds that yield 3 percent or paying out the cash to investors who would invest in ..
Nano Manufacturing wants to issue 2 million new shares. It has 4 million shares outstanding, which its investment banking firm estimates $65 million. If the investment banking firm charges a 4% spread, calculate the offer price and total amount ($) t..
Since depreciation is a cash expense, the faster an asset is depreciated, the lower the projected NPV from investing in the asset. Under current laws and regulations, corporations must use straight-line depreciation for all assets whose lives are 5 y..
Bond rating agencies have invested significant sums of money in an effort to determine which quantitative and non-quantitative factors best predict bond defaults. To recoup those costs, some bond rating agencies have tied their ratings to the purchas..
Big Bass Sound (BBS) is a thriving music business. You would like to understand the market risk of BBS and are looking to find its Beta of the Assets. BBS' Beta of Equity is 3, the beta of debt is 0.3, and the tax rate is 32%. BBS has 169 in debt out..
A project has the following cash flows: Year Cash Flow 0 –$ 16,700 1 7,400 2 8,700 3 7,200. What is the NPV at a discount rate of zero percent? What is the NPV at a discount rate of 30 percent?
What exchange-rate risk does Alcoa face in this transaction?- What alternatives does Alcoa have to hedge this exchange-rate risk?
Midwest Packaging’s ROE last year was only 3 percent, but its management has developed a new operating plan that calls for a total debt ratio of 50 percent, which will result in annual interest charges of $300,000. Management projects an EBIT of $1,0..
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