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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 144,000 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 $1,840,000 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 $154,000. Your fixed production costs will be $269,000 per year, and your variable production costs should be $8.90 per carton. You also need an initial investment in net working capital of $134,000. If your tax rate is 39 percent and you require a return of 12 percent on your investment, what bid price per carton should you submit? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Calculate the NPV for a project with the following cash flows, a cost of capital of 10% and an initial investment of 35,000. The expected cash flows for a newly planned project are $5,000 per year for the first three years and then $6,000 for the nex..
Two years ago, you invested $1,000 in a healthcare stock. Your return during the first year was -50 percent, while your return in the second year was +50 percent. Your investment is now worth $1,000.
Consider a six-month European put option on an index. The current index value is $2030, the strike price is $2090, the dividend yield is 2% per annum, and the continuously compounded risk-free interest rate is 6% per annum. The volatility of the inde..
A stock is currently priced at $86. The stock will either increase or decrease by 20 percent over the next year. There is a call option on the stock with a strike price of $85 and one year until expiration. If the risk-free rate is 3 percent, what is..
Photochronograph Corporation (PC) manufactures time series photographic equipment. what is the NPV of the new plant?
Calculate the firms EOQ for the item of inventory and what is the firms total cost based upon the EOQ calculated above - Calculate the current earnings per share
The inflation premium increases the real return. The quoted price of a bond is referred to as the clean price.
What are advantages and disadvantages of stock repurchases relative to traditional dividend payments and how does dividend payment affect stock price? any supporting evidence?
A firm creates a Special Purpose Entity to buy their accounts receivable. Special Purpose Entity to buy their accounts receivable.
You take a long position in 400 shares of NIFTY stock priced at $55 on full margin, Interest on your margin loan is 5%. Transaction costs are $20 on both ends.
Ignoring accumulated depreciation, long-term asset values increased during the year by $120,000. What is the firm's cash flow to investors?
Tobin and Lauren want to save $9,000 so that they can take a belated honeymoon trip to Europe in 4 years and 2 months. How much must they save each month to have the money they need if they can get 12% annually on their savings?
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