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You have been asked by the president of your firm to evaluate the proposed acquisition of new special-purpose equipment. The equipment's base price is $500,000, and another $50,000 for its installation costs. The equipment falls into the MACRS 3-year class, and it will be sold at the end of the project’s 2-year life for $250,000. Use of the equipment will require net working capital investment equivalent to 20% of the following year’s incremental revenues. The equipment will increase annual revenues by $100,000, and save the firm $200,000 in annual operating costs. The annual revenues and operating costs are expected to grow at an annual rate of 10% during the 2nd-year of the project. This equipment will be placed in an unoccupied site, which can otherwise be sold for $100,000 today. This site will be sold for the same price at the termination of the project. The depreciation of this site that your firm owns can be ignored. The firm's tax rate is 30 percent and the discount rate for the project is 12%.
(a) Compute the non-operating cash flows (i.e., capital spending and change in NWC) at the end of Year 2. <$333,679>
(b) What is the NPV <$73,430>
You own 1,100 shares of stock in Avondale Corporation. You will receive a $2.40 per share dividend in one year. In two years, Avondale will pay a liquidating dividend of $72 per share. The required return on Avondale stock is 20 percent. what is the ..
Kroeger Exporters has total assets of $74,300, net working capital of $22,900, owners’ equity of $38,600, and long-term debt of $23,900. What is the value of the current assets?
All else equal an increase in beta results in? an increase in the cost of retained earnings an increase in the cost of common equity whether or not the funds come from retained earnings or newly issue common stock an increase in the cost of newly iss..
A portfolio manager in charge of a portfolio worth $50 million is concerned that the market might decline rapidly during the next six months and would like to use options on the S&P 100 to provide protection against the portfolio falling below$45 mil..
You purchased 330 shares of a particular stock at the beginning of the year at a price of $75.93. The stock paid a dividend of $1.25 per share, and the stock price at the end of the year was $82.44. What was your dollar return on this investment?
Using the P/E ratio approach to valuation, calculate the value of a share of stock under the following conditions: the investors required rate of return 14%. the expected level of earning at the end of the year (E1) is $5. the firm follows a policy o..
Maximization of shareholder wealth
A convertible bond has a 6.5 percent coupon, paid semiannually, and will mature in 10 years. If the bond were not convertible, it would be priced to yield 5.5 percent. The conversion ratio on the bond is 25 and the stock is currently selling for $51 ..
An analyst predicted last year that the stock of Logistics, Inc., would offer a total return of at least 10% in the coming year. At the beginning of the year, the firm had a stock market value of $10 million. At the end of the year, it had a market v..
Twenty years ago JeffCo Inc. issued thirtyminus−year ?9% annual coupon bonds with a? $1,000 face value each. Since? then, interest rates in general have risen and the yield to maturity on the? firm's bonds is now? 11%. Given this? information, what i..
The current price of oil is 32 per barrel and the 6- month forward is $30.75. The continuously compounded risk-free rate is 2%. What is the annualized lease rate for this oil contract?
Serena receives a fifty-year annuity due that has payments that start at $2,000 and increase by 3% per year through the twenty-fourth payment, then stay level at $4,000. Find the accumulated value of this annuity at the end of fifty years if the annu..
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