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CompU is looking at starting a major advertising campaign to further expand their business. Based on preliminary estimates, the advertising campaign will cost $100,000 and will increase revenue by $80,000 per year for the next 5 years. The increased expenses excluding depreciation will be $35,000 per year. Inventory will increase by $25,000, accounts receivable will increase by $20,000, accounts payable will increase by $20,000, and accruals will increase by $15,000. The company is in the 40% tax bracket. The ad campaign will be capitalized and depreciated using a 5-year MACRS recovery schedule. a. Calculate the payback period of the ad campaign. b. Give a cost capital of 9%, calculate the net present value of the campaign. c. Calculate the internal rate of return of the campaign.
Jemisen's firm has expected earnings before interest and taxes of $1,600. Its unlevered cost of capital is 13 percent and its tax rate is 34 percent. The firm has debt with both a book and a face value of $2,400. This debt has a 7 percent coupon and ..
John’s son will be going to college in 8 years. John want’s to have a fund that will provide him $12,000 per year (end of year) for each of his son’s five years in college. How much must he put into that fund today if the fund will earn 12 percent in..
Rocky Ground Camping Supply Inc. has 200,000 shares of stock outstanding, each with a par value of $5 and a market value of $15. In addition, on the balance sheet there is additional paid in capital of $950,000 and retained earnings of $1,450,000. Su..
A firm is evaluating two investment proposals. The following data is provided for the two investment alternatives. Initial Cash Flow IRR NPV @ 18% Project 1 $250m 28% $80m Project 2 $50m 36% $20m Which project should the firm choose based on the IRR ..
A recent college graduate has taken a new job at Work LLC and since the company does not offer a traditional pension plan, she plans to take advantage of a tax-free investment account backed by a reputable financial institution that offers a guarante..
_____11. An interest rate swap to synthetically convert fixed rate interest on a stock investment into floating rate interest.
Suppose the market portfolio’s return is 30% when the economy is strong and -20% when the economy is weak. A
If the balance on the current account is $842 billion and the balance on the financial account is -$603 billion, what is the balance on the capital account assuming no statistical discrepancy?
The NEWT Company is located in a country where there are no taxes and there are perfect capital markets so that there are no bankruptcy costs. The corporation currently has $25 million in debt outstanding and the value of its equity is $75 million. W..
Assume Black-Scholes: The continuously compounded risk-free interest rate is equal to the rate of dividend continuously being paid out by the stock. Determine the volatility of the stock
Employer contribution to an employee's pension benefits can be deducted as an expense from taxable income only to a limit (the amount above that limit is not tax deductible). Any amount contributed above that limit is an example of an expense that is..
Stock Expected Return (rs) Beta. What is the portfolio’s expected return? What is the portfolio’s beta risk? Is it more or less risky than the market? The investor is not comfortable with holding a portfolio that has a risk not equal to that of the m..
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