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Your company has been approached to bid on a contract to sell 4,000 voice recognition (VR) computer keyboards a year for four years. Due to technological improvements, beyond that time they will be outdated and no sales will be possible. The equipment necessary for the production will cost $3.6 million and will be depreciated on a straight-line basis to a zero salvage value. Production will require an investment in net working capital of $93,000 to be returned at the end of the project, and the equipment can be sold for $273,000 at the end of production. Fixed costs are $638,000 per year, and variable costs are $153 per unit. In addition to the contract, you feel your company can sell 9,300, 10,200, 12,300, and 9,600 additional units to companies in other countries over the next four years, respectively, at a price of $300. This price is fixed. The tax rate is 40 percent, and the required return is 10 percent. Additionally, the president of the company will undertake the project only if it has an NPV of $100,000. What bid price should you set for the contract?
How is a net present value profile used to compare projects? What causes conflict in the ranking of projects via net present value and internal rate of return? Does the assumption concerning the reinvestment of intermediate cash inflows tend to favor..
There are two parties in any lease contract - Lessee and the lessor. To a lessor, a lease analysis involves a capital digesting analysis of the property or equipment to be leased. The lessor's decision is either to purchase and lease-out the asset, o..
Whistle Stop Trains pays a constant $16 dividend on its stock. The company will maintain this dividend for the next 14 years and will then cease paying dividends forever. What is the current price per share if the required return on this stock is 15 ..
B&B has a new baby powder ready to market. If the firm goes directly to the market with the product, there is only a 60 percent change of success. However, the firm can conduct customer segment research, which will take a year and cost $600,000. By g..
We know the following about Alloy and Brant (A&B). Total assets are $220m, D is $140m, E is $60m, preferred stock of $20m, cash is $100m and the # of shares is 1m. We estimate that the market value of equity is 2 times the book value of it. Finally, ..
The fact that risk and uncertainty are experienced differently might matter in times of financial crisis. What are the key differences between risk and uncertainty? Discuss.
saven travel corporation is considering several investment opportunities in order to diversify its operations. mr.
Company Z-prime’s earnings and dividends per share are expected to grow by 5% a year. Its growth will stop after year 4. In year 5 and afterward, it will pay out all earnings as dividends.
Suppose that you read in The Wall Street Journal that a bond has a coupon rate of 9 percent, a price of 71.375% (of face value) , and pays interest annually. Rounded to the nearest whole percent, what would be the bond’s “current” yield? A 12-year bo..
uperwidget Inc. has an equity beta of 1.5. The market risk premium is 6%, and the risk-free rate is 2%. Superwidget has just paid a dividend of $5 per share, and its current market stock price is $106. Superwidget pays regular dividends once a year. ..
A company is considering new automated cleaning equipment. The engineer for the company has been asked to calculate the present worth of the proposed alternative. The market value at the end of the five year study period is 12.5% of the initial cost...
You are considering an investment in Keller Corp's stock, which is expected to pay a dividend of $1.50 a share at the end of the year (D1 = $1.50) has a beta of 0.9. The risk-free rate is 4.6%, and the market risk premium is 5.0%. Keller currently se..
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