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Another utilization of cash flow analysis is setting the bid price on a project. To calculate the bid price, we set the project NPV equal to zero and find the required price. Thus the bid price represents a financial break-even level for the project. Guthrie Enterprises needs someone to supply it with 158,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It will cost you $1,980,000 to install the equipment necessary to start production; you’ll depreciate this cost straight-line to zero over the project’s life. You estimate that in five years this equipment can be salvaged for $168,000. Your fixed production costs will be $283,000 per year, and your variable production costs should be $10.30 per carton. You also need an initial investment in net working capital of $148,000. If your tax rate is 34 percent and you require a return of 12 percent on your investment, what bid price per carton should you submit?
The coupon interest rate is 7.5%; and the yield to maturity is 9%. What is the bond's current market price?
Describe a statistical test for the IFE. Would the IFE be more likely to hold between the United Kingdom and Hungary if trade barriers were completely removed.
X Corp wants to earn an effective annual rate on its consumer’s loan of 17% per year. The bank used daily compounding on its loans. What interest rate is the bank required by law to report to potential borrowers? Explain why this rate is misleading t..
Jenningston Mills has a market value equal to its book value. Currently, the firm has excess cash of $1,200, other assets of $5,800, and equity valued at $3,750. The firm has 250 shares of stock outstanding and net income of $420. What will the new e..
Keenan Co. is expected to maintain a constant 4.2 percent growth rate in its dividends indefinitely. If the company has a dividend yield of 6.0 percent, what is the required return on the company’s stock?
What is its component cost of capital if it faces a 2% flotation cost?
County Ranch Insurance Company wants to offer a guaranteed annuity in units of ?$800?, payable at the end of each year for 15 years. The company has a strong investment record and can consistently earn 10% on its investments after taxes. If the compa..
Find the present value of the follwing sum of money:
Briefly explain why financial managers need to pay attention to the TIMING of cash flows.
You have $252,000 to invest in a stock portfolio. Your choices are Stock H, with an expected return of 14.2 percent, and Stock L, with an expected return of 10.3 percent. If your goal is to create a portfolio with an expected return of 12.1 percent, ..
A corporation has 10,000 bonds outstanding with a 6% annual coupon rate, 8 years to maturity, a $1,000 face value, and a $1,100 market price.
The 2014 balance sheet of Sugarpova's Tennis Shop, Inc., showed long-term debt of $5.2 million, and the 2015 balance sheet showed long-term debt of $5.3 million. The 2015 income statement showed an interest expense of $170,000. What was the firm’s 20..
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