Cash flows will depend on the state of the economy

Assignment Help Financial Management

Reference no: EM133674213

Question

London Co. operates under ideal conditions of uncertainty. Its cash flows will depend on the state of the economy. On January 1, 2022, the company acquired a plant and equipment for $ 1703.401 that will last two years and then will be retired with no salvage. The purchase price was financed with an issue of common stock. In 2022, net cash flows will be $800 if the state of the economy is good and $600 if it is bad. In 2023, cash flows will be $1,200 if the economy is good and $600 if it is bad. Cash flows are received at year-end. In each year, the probability that the economy is good is 80%. The interest rate in the economy is 5 percent in both years. London will pay a dividend of $70 at the end of 2022. In 2022, the economy is bad.

Calculate the net income for 2022. (No income statement is required).

Reference no: EM133674213

Questions Cloud

How much interest did jane pay on the loan : What was the total amount Jane ended up paying for the machinery. How much interest did Jane pay on the loan?

What are debentures : What are debentures? How are debentures different from shares? What are the types of debentures?

How much long-term debt must company have paid off : During 2020, the company raised $702 in new long-term debt. How much long-term debt must the company have paid off during the year?

Analyze possibilities for the next financial crisis : Discern and analyze possibilities for the next financial crisis and make a correspondingly appropriate investment recommendation using fixed income instruments

Cash flows will depend on the state of the economy : London Co. operates under ideal conditions of uncertainty. Its cash flows will depend on the state of the economy.

What effect will the loan and the investment : What effect will the loan and the investment have on the firm's times interest earned ratio?

Determine net present value level of annual sales volume : Rework the prior problem to determine the net present value level of annual sales volume that is needed to generate a net present value of $0.

Assume the bonds pay annual interest : Both bonds have 10-year maturities and sell at a yield to maturity of 10%. what is the rate of return on each bond? Assume the bonds pay annual interest.

What is percentage of founder family votes to class b votes : Rust Pipe Company was established in 1994. Four years later the company went public. What is the percentage of the founder's family votes to Class B votes?

User Account

All Pages