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Calculating Projected Net Income.
A proposed new investment has projected sales of $645,000. Variable costs are 40 percent of sales, and fixed costs are $168,000; depreciation is $83,000. Prepare a pro forma income statement assuming a tax rate of 35 percent. What is the projected net income? What is the OCF? Hint use the formula OCF= EBIT + Depr. - Taxes. Utilizing the depreciation tax shield approach for OCF --Hint the OCF=((Sales - Costs) (1-T) + (Depr. *T)), determine the operating cash flow (OCF). The OCF number should be the same whether you used the pro forma income statement approach or the depreciation tax shield approach. What is the depreciation tax shield within the OCF?
What if prime suddenly increased 200 basis points? The customer enters into a position in June futures to fully hedge her position. When June arrives, the actual exchange rate is $1.725 per pound. How much did she save?
The beta of stock A is 2.3 while the beta of stock B is 0.5. 30% of the portfolio is invested in the risk-free security. What is the dollar amount invested.
What was the impact of the near failure of Bear Stearns and the failure of Lehman Brothers on Money Markets? What actions did the Federal Reserve and the Treasury Department take?
explain the difference relative to the current market price of a stock between the following types of orders sell
A) What is the probability that a patient who tested positive on this test actually has the disease, if it estimated that 20% of the population has the disease? B) What is the probability that patient who tested positive on this test actually has..
Is dividend policy important in financial management? Also, discuss why dividends can be used as information signals to reduce firm’s information asymmetry problem. Provide you own example(s) to support your argument.
In order to sustain its operations and thus generate sales and cash flows in the future, the firm was required to make $1,250,000,000 of capital expenditures on new fixed assets and to invest $300,000,000 in net operating working capital.
In the binomial stock price tree, what restrictions are needed on the up and down factors, relative to the risk-free rate, to avoid arbitrage? Explain.
Which fluctuate more long-term or short-term interest rates? Why?
Consider a 3-year project with the following information: initial fixed asset investment = $770,000.
what is the expected capital gains yield over the next year for Bond P? For Bond D? Explain your answers and the interrelationship among the various types of yields.
Solutions to Quiz 2 are after the questions. Consider two bonds, A and B. Both bonds presently are selling at their par value of $1,000. Each pay interest of $120 annually. Bond A will mature in 5 years while bond B will mature in 6 years. If the yie..
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