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Big Ben Inc. is considering a project that will require the purchase of $875,000 in new equipment. The equipment will be depreciated straight-line to a zero book value over the 7-year life of the project. The equipment can be scraped at the end of the project for 5% of its original cost. Annual sales from this project are estimated at $420,000. Net working capital equals 20% of sales to support the project. All of the net working capital will be recouped. The required rate of return is 16% and the tax rate is 34%. Calculate the depreciation tax shield in year 4 of the project. (Round to a whole number)
Fethe Inc. is a custom manufacturer of guitars, mandolins, and other stringed instruments and is located near Knoxville, Tennessee. Fethe's current value of operations, which is also its value of debt plus equity, is estimated to be $5 million. Using..
Someone in a heavier tax bracket, but paying the same interest rate as someone else, might be better off as the after tax rate could/would be lower. Can you think of a circumstance this might happen in? Perhaps an industry which this is more likely t..
Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next nine years because the firm needs to plow back its earnings to fuel growth. The company will pay a $14 per share dividend 10 years from today ..
What bid price should you set for the contract?
What is the present value of the stock if the effective annual interest rate is 25%?
what is the required return on Unilever's stock?
Fabrice is looking to buy a new plug-in hybrid vehicle. The purchase price is $12,500 more than a similar conventional model. However, he will receive a $5,600 federal tax credit that he will realize at the end of the year. He estimates that he will ..
DuPont Analysis Last year, PJ's Ice Cream Parlors, Inc. reported an ROE = 12.5%. The firm's debt ratio was 35%, sales were $30 million, and the capital intensity ratio was .80 times. What is the net income for PJ's last year? (Do not round intermedia..
High price multiples:
The MoMi Corporation’s income before interest, depreciation and taxes, was $3.2 million in the year just ended, and it expects that this will grow by 5% per year forever. Use the free cash flow approach to calculate the value of the firm and the firm..
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...
You have just arranged for a $1,760,000 mortgage to finance the purchase of a large tract of land. The mortgage has an APR of 7.6 percent, and it calls for monthly payments over the next 25 years. However, the loan has an eight-year balloon payment, ..
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