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Calculate the Project and Equity Free Cash Flows for the following scenario. We want to finance a project with 30% debt (70% equity). We expect $1,000,000 in sales for next year; COGS to be 55% of sales; depreciation will be $400,000 and offset with $400,000 in new CAPEX. Assume that Year 1 is the first year of a perpetuity with no growth (you get the t1 cash flow for ever). The firm's cost of debt is 4% (assume the debt is perpetual and you never pay down any principal); the cost of equity is 12%; the tax rate is 35%. Hint: to determine the EFCF you will need to determine the value of the firm and the value of "D" so you can find the interest payment. Part II: If the firm in Problem 4 were to decide to use 50% debt, how would the Project Free Cash Flow be affected?
Discuss how the futures markets can be employed to reduce interest rate and input price risk.
Sonia, a book dealer, has following assets: a building worth $155,000, accounts receivable amounting to $32,500 due within the next three months, and $25,000 cash in the bank.
Distinguish between project and parent perspectives when capital budgeting in a global situation.
Calculate two EBIT-EPS coordinates for each of the structures and indicate over what EBIT range, if any, each structure is preferred
The firm has decided to spend all of its excess cash on a share repurchase program. How many shares of stock will be outstanding after the stock repurchase is completed?
You are in charge of a project that has a degree of operating leverage of 2.64. What will happen to the operating cash flows if the number of units you sell increase by 4 percent?
Explain how these estimates would be used to calculate an abnormal return.
Aston Technologies is bringing a new product to market. It will require an investment of $200,000 today. The firm expects to sell 1,000 units per year at $26 each, for the next twenty years. Expenses are zero, and you can ignore taxes. The rel..
An investor deposits $50,000 today in the interest bearing account. How much would the investor accumulate by the end of five years if interest is compounded monthly?
On January 8, 2016, a bank wants to lock in the 3-month interest rate starting on June 20, 2017. The investor buys June2017 Eurodollar futures contracts at 96.53. What is the interest rate that the investor locked in?
Simon recently received a credit card with an 18% nominal interest rate. With the card, he purchased a new stereo for $350. The minimum payment on the card is only $10 per month.
If there are no restrictions on short sales or borrowing, what is the expected return and standard deviation on the portfolio of these two assets if they are invested half in A and half in B?
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