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The following information is associated with a proposed new project. The initial cost of the project is estimated to be $100,000 and the project's cash flows over its six-year contract are estimated to be $26,000 annually. The firm's current cost of capital for common stock equity is 12%. However, another firm, whose principal focus is in the same field, is publicly traded and has a beta of 1.5. The market is currently yielding 12% and the yield on short-term treasury bills is 6%. Use CAPM to determine the cost of capital for new stock issue (assume it includes flotation costs). Bonds have a cost of capital of 10% (including flotation costs and price adjustments). Assume a 50% weighting for new stock issue and 50% weighting the new bond issue. Calculate the WACC for the firm and use that to calculate the NPV for the new project is. What is the NPV? Would you undertake the project? Show you work.
Add an outflow (or cost) of $1,000 at Year 0. What is the present value (or net present value) of the stream?
Average annual net income =$70,000, Original investment amount = $ 410,000, Unrecovered assets cost at the end of useful life (salvage value) =$41,000. compute the unadjusted rate of return using the original investment amount. compute the unadjusted..
You have accumulated some money for your retirement. To answer this question, you have to find the present value of these cash flows.
When executing trades on a spot or forward basis, premiums and discounts are involved. Circle or highlight the appropriate term:
Define three types of synergy that may result from mergers and what the sources of these synergies are.
Suppose your company needs $2.4 million to build a new assembly line. What the true cost of building the new assembly line?
George and Barbara Shrub would like to purchase a large white house and are evaluating their financing options. Bank A offers a 10-year mortgage at 12% annual interest, compounded monthly, with payments made at the end of each month. The annual payme..
Acme Services’ CFO is considering whether to take on a new project that has average risk. She has collected the following information: • The company has outstanding bonds that mature in 26 years. The bonds have a face value of $1,000, an annual coupo..
Will the new project be undertaken if the firm has debt outstanding D1 = 6,000 and manager operates on behalf of shareholders’ interests?
Scanlon Inc. is considering Projects A and B, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher IRR, how much value will be forg..
The hospital consumed 2,630,000 of supplies in the provision of its ambulatory services.
The current interest rate on mortgages is 4% p.a. What is the loan size you can afford?
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