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A bicycle manufacturer currently produces 206,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $1.90 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct? in-house production costs are estimated to be only $1.60 per chain. The necessary machinery would cost $231,000 and would be obsolete after ten years. This investment could be depreciated to zero for tax purposes using a? ten-year straight-line depreciation schedule. The plant manager estimates that the operation would require $27,000 of inventory and other working capital upfront? (year 0), but argues that this sum can be ignored since it is recoverable at the end of the ten years. Expected proceeds from scrapping the machinery after ten years are $17,325. If the company pays tax at a rate of 35% and the opportunity cost of capital is 15%?, what is the net present value of the decision to produce the chains in-house instead of purchasing them from the supplier?
The FCF in years 1 through 9 of producing the chains is $ ? (Round to the nearest dollar. Enter a free cash outflow as a negative number.)
You are given the following information for Calvani Pizza Co.: sales = $42,000; costs = $22,200; addition to retained earnings = $5,350; dividends paid = $1,800; interest expense = $4,600; tax rate = 35 percent. Calculate the depreciation expense. (D..
Optimal-distribution, Par value, Positive, Preferred stock, Residual distribution model, Short-term, Stock dividend, Stock split, Target capital structure, Tax-deductible, Tax preference theory, Treasury stock, Undervalued
This year, Shoreline Light and Gas (SL&G) paid its stockholders an annual dividend of $3 a share. A major brokerage firm recently put out a report on SL&G predicting that the company’s annual dividends would grow at the rate of 10% per year for each ..
Abbott Lab made $2.80 net income per share last year and paid out $1.30 in dividend. The company had a book value (or equity) per share of $20. The market has a risk free rate of 3.1% and market return 11.1%. Abbott has a historical beta of .90. Wh..
A portfolio is comprised of two stocks, A and B. Stock A has a standard deviation of return of 5% while stock B has a standard deviation of return of 15%. The correlation coefficient between the returns on A and B is .2778. Stock A comprises 40% of t..
What is the purpose of peer group ratio comparison? Write a short paragraph on the each of the following ratios: “Core deposits to total assets,” “Loans to deposits,” and “Loan commitments to total assets.” What is each ratio’s relationship to liquid..
Suppose XG is considering an expansion which it will finance through additional bond sales. Current outstanding XG bonds are selling for $1,148.77. These have a face value of $1,000, and a coupon of 8% and 10 years to maturity. If interest is paid se..
Proponents of CAPM have concluded that all of the following are correct EXCEPT one: What is the objective of calculating the standard deviation of an investment portfolio? Which of the following definitions of return is false? Which of the following ..
In 2012, client creates a 10-year QPRT into which his primary residence is transferred. The value of the residence on the transfer date was $1 million. Since the client is a widower, the residence is far too large. As a result, the Trustee sells the ..
BMW issued 20 year $1,000 bonds in 2014 with an annual coupon rate of 7.45%. In 2016 after the coupon for 2016 is paid, that bond can be purchased for $1,285. If you bought this bond, what is the current yield and yield to maturity?
Pick a brand. Employ projective techniques to attempt to identify sources of its brand equity. Which measures work best? Why?
Feeback Corporation stock currently sells for $77 per share. The market requires a return of 9.2 percent on the firm’s stock. If the company maintains a constant 2.6 percent growth rate in dividends, what was the most recent dividend per share paid o..
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