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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 149,000 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 $1,890,000 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 $159,000. Your fixed production costs will be $274,000 per year, and your variable production costs should be $9.40 per carton. You also need an initial investment in net working capital of $139,000. The tax rate is 35 percent and you require a 10 percent return on your investment. Assume that the price per carton is $16.90.
What is the minimum number of cartons per year that can be supplied and still break even? (Do not round intermediate calculations and round your answer to the nearest whole number. (e.g., 32))
What is the highest fixed costs that could be incurred and still break even? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Admiral Trust Company makes an amortized loan of $47,000, to be repaid by annual end-of-year payments of $4,675 for eighteen years. In order to replenish its capital, the company will make level annual payments into a sinking fund account earning 5% ..
You need to analyze the given case study also analyse discount rate, NPV etc with recommendations.
Maggie's Muffins, Inc., generated $2,000,000 in sales during 2015, and its year-end total assets were $1,500,000. Also, at year-end 2015, current liabilities were $1,000,000, consisting of $300,000 of notes payable, $500,000 of accounts payable, and ..
Ordinary annuities are common with leases and premiums paid to insurance companies because these cash flows usually occur at the beginning of the period. An IRR of 14% is better than an IRR or 12% (all other variables the same).
A firm just paid $2.00 on its common stock and expects to continue paying dividends, which are expected to grow 5% each year, from now to infinity. If the required rate of return for the stock is 9%, then the value of the stock is:
John takes out a 3 year, $6000 loan at 5% interest, compounded annually, that requires annual interest payments and equal annual payments of principal. Create a time line that shows all cash flows for this investment.
During the past 6 years, the level of demand for a company's product has increased from 1,310 units per day to 1,890 units per day. What was the average annual compound growth rate over this period. Show the solution.
Southwest Physicians, a medical group practice, is just being formed. It will need $2 million of total assets to generate $3 million in revenues. Furthermore, the group expects to have a profit margin of 5%. The group is considering two financing alt..
Bond Yields. A bond with face value $1,000 has a current yield of 6% and a coupon rate of 8%. (LO6-1) If interest is paid annually, what is the bond’s price? Is the bond’s yield to maturity more or less than 8%?
Suppose that a firm's recent earnings per share and dividend per share are $3.15 and $2.60, respectively. Both are expected to grow at 6 percent. However, the firm's current P/E ration of 27 seems high for this growth rate. The P/E ratio is expected ..
Careers Unlimited issued a bond, with a $1000 par value, 10 years ago that has 8 years remaining to maturity and an annual coupon rate of 12 percent. The interest payments are made every six months. If the current market price is $1230, what is the y..
you have been hired in the finance department at a large metropolitan for-profit hospital. your duties are very
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