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Gateway Communications is considering a project with an initial fixed asset cost of $2.46 million which will be depreciated straight-line to a zero book value over the 10-year life of the project. At the end of the project the equipment will be sold for an estimated $300,000. The project will not directly produce any sales but will reduce operating costs by $725,000 a year. The tax rate is 35 percent. The project will require $45,000 of inventory which will be recouped when the project ends. Calculate the project’s NPV if the firm requires a 14 percent rate of return.
Carolyn is senior vice president of finance and chief actuary for Rock Solid Insurance Company (RSIC). Lonnie is double-majoring in finance and mathematics at State University. Explain how it is possible for Rock Solid to have $500 million in written..
Patton Paints Corporation has a target capital structure of 25% debt and 75% common equity, with no preferred stock. Its before-tax cost of debt is 11% and its marginal tax rate is 40%. The current stock price is P0 = $33.50. The last dividend was D0..
Company XYZ had $410 million in sales last year, and it had $75 million of fixed assets that were being operated at 80% of capacity. How large could sales have been (in Millions) if the company had operated at full capacity?
Flemish Corp. is looking to invest in a new project that requires an initial investment of $100,000 in equipment. This equipment falls in the 3-year MACRS class for depreciation purposes. In addition to the initial investment, Flemish expects an init..
The long-term liability section of Escovedo Company’s Balance Sheet includes the following accounts: Escovedo Company is an established company and does not experience any financial difficulties or have any cash flow problems. Discuss at least two it..
According to the residual theory of dividends, if a firm's equity need exceeds the amount of retained earnings, the firm would borrow to pay the cash dividend sell additional stock to pay the cash dividend pay no cash dividends pay less dividends.
ABC Corp. issued a 12 percent, 20 year coupon rate bond 5 years ago. Interest rates are now 8 percent. The par value of the bond is $1,000. Based on semi-annual analysis, what is the current price of the bond?
James starts saving at the age of 25 in an annuity which is paying 4% interest compounded monthly by depositing $200 every month till the age of 35. He then gets a much better job and starts saving $600 every month till the age of 55.. However, with ..
What is the expected return of the portfolio? What percentage of your portfolio variance comes from the “interaction” component of total risk?
Interest rates fluctuate (though you can lock in a long-term constant rate by buying a long-term bond or certificate of deposit),
Last year National Aeronautics had a FA/Sales ratio of 40%, comprised of $250 million of sales and $100 million of fixed assets. However, its fixed assets were used at only 45% of capacity. What target FA/Sales ratio should the company set?
Anacott Steel is acquiring Terafly Incorporated. Terafly is expected to provide Anacott with operating cash flows of $12, $21, $16, and $9 million over the next four years, respectively. In addition, the horizon value of all remaining cash flows at t..
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