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Pappy’s Potato has come up with a new product, the Potato Pet (they are freeze-dried to last longer). Pappy’s paid $122,000 for a marketing survey to determine the viability of the product. It is felt that Potato Pet will generate sales of $577,000 per year. The fixed costs associated with this will be $181,000 per year, and variable costs will amount to 22 percent of sales. The equipment necessary for production of the Potato Pet will cost $624,000 and will be depreciated in a straight-line manner for the four years of the product life (as with all fads, it is felt the sales will end quickly). This is the only initial cost for the production. Pappy’s is in a 30 percent tax bracket and has a required return of 15 percent. Requirement 1: Calculate the payback period for this project. Requirement 2: Calculate the NPV for this project Requirement 3: Calculate the IRR for this project.
Your firm, General Hospital currently uses zero debt financing. Its operating income (EBIT) is $1 million and it pays taxes at a 40 percent rate. It has $5 million in assets and, because it is all-equity financed, $5 million in equity. Suppose the fi..
Consider a 15-year, $150,000 mortgage with a rate of .0590 percent. Nine years into the mortgage, rates have fallen to 5 percent. What would be the monthly saving to a homeowner from refinancing the outstanding mortgage balance at the lower rate for ..
Pecos Manufacturing has just issued a 15-year, 12% coupon interest rate, $1000-par bond that pays interest annually. The required return is currently 14%, and the company is certain it will remain at 14% until the bond matures in 15 years. Plot your ..
Middleton's has sales for the year of $311,400, cost of goods sold equal to 74 percent of sales, and an average inventory of $42,800. The profit margin is 6 percent and the tax rate is 34 percent. How many days on average does it take the firm to sel..
Springfield Ironworks (SI) recently had their furnace break down and they need to quickly purchase a new one to minimize the disruption in their production. They can either choose a high quality furnace (H) that costs $130,000 with $4,000 of annual m..
A 25-year maturity bond with face value of $1,000 makes semiannual coupon payments and has a coupon rate of 8%. a. What is the bond’s yield to maturity if the bond is selling for $1,010? Enter annual yield to maturity as your answer. b. What is the b..
What do the terms core deposits and volatile, or noncore, deposits mean? Explain how a bank might estimate the magnitude of each.
Last year Rennie Industries had sales of $305,000, assets of $175,000, a profit margin of 5.3%, and an equity multiplier of 1.2. The CFO believes that the company could reduce its assets by $51,000 without affecting either sales or costs. Had it redu..
For the past three years, Wayne has been the sole owner and CEO of a corp that manufactures and distributes a relatively expensive high-tech baby monitoring device known as "Hear All." The business has grown steadily, and Wayne is convinced that it's..
Ritz Furniture has a contribution margin ratio of 0.17. If fixed costs are $171,500 how many dollars of revenue must the company generate in order to reach the break-even point?
an investment portfolio contains stocks of a large number of corporations. over the last year the rates of return on
Central Credit Union is offering 6.7 percent compounded daily on its savings accounts. If you deposit $5,100 today, how much will you have in the account in 5 years? In 10 years? In 20 years?
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