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Your company already has spent $75,000 to conduct market research about the demand for the product, which indicates the optimal wholesale price for the product would be $15.50 per unit, based on the prices of similar products that competitors sell. The market research also indicates that demand for the product would last for five years. At a price of $15.50 per unit, the market research suggests that sales would be 100,000 units in the first year, and unit sales would increase 5% per year over the remaining four years of the product’s life. Your company’s production manager estimates manufacturing the product would require a machine that costs $800,000, and falls in the 3-year MACRS depreciation class. The machine’s expected salvage value in five years is expected to be $75,000. The production manager also estimates the product’s variable costs, consisting of raw materials and labor, would be $9.35 per unit, and the annual fixed costs excluding depreciation would be $300,000. He states the product could be manufactured in a building for which your company has no other use. Your company’s stock price is $74.61 per share, the last annual dividend was $2.50 per share, and market analysts who follow your company’s stock expect the dividends to grow forever at a rate of 5.5% per year. The company’s beta is 1.43 and Treasury bills are paying 2.5% per year. The company’s bonds have a par value of $1,000, pay a coupon of 5.5% per year, semiannually, have 17 years to maturity, and are trading at $925. The company’s treasurer estimates that the new product would require a $300,000 increase in net working capital. She also has told you the company’s target capital structure is 40% debt and 60% equity, the company’s tax rate is 35%, and she expects the stock market return over the next year will be 7.0%. Make into a chart for an excel sheet.
Kinkead Inc. forecasts that its free cash flow in the coming year, i.e., at t = 1, will be -$10 million, but its FCF at t = 2 will be $20 million. After Year 2, FCF is expected to grow at a constant rate of 4% forever. If the weighted average cost of..
In this assessment you will use the data provided below and conduct a profit (CVP) analysis. You will be graded based on your understanding of profit (CVP) analysis, the accuracy of your calculations, the validity of you conclusions and your abili..
Tammi purchased a ring costing $30,000 by taking out a 5.5% add-on installment loan. How much are her monthly payments?
Growth in the complexity of the U.S. business environment
Stock A is a risky asset that has a beta of 1.4 and an expected return of 13.2 percent. Stock B is also a risky asset and has a beta of 1.25. The risk-free rate is 5.5 percent. Assuming both stocks are correctly priced, what is the expected return on..
The Artful Dodger has decided to sell packages of firecrackers at an upcoming parade. How many packages will the Dodger have to sell to break even?
The stock value/price that is determined using the formula in the textbook (stock valuation) may be different from the actual stock price at the stock market. Why? When does an option - a call option or a put option - mitigate a stock loss and improv..
A firm has a profit margin of 15% on sales of $20,000,000. If the firm has total assets of $25,000,000, a total debt-equity ratio of 25% and its stock is selling at $36. What is the total asset turnover ratio?
When the social marginal benefit curve of reduction of pollution is locally flat, which of the following generally makes sense in the presence of uncertainty about costs of reduction? Which of the following are questions answered by public finance? W..
Jackson Corp. common stock paid $2.50 in dividends last year (D0). Dividends are expected to grow at a 12-percent annual rate forever. If Jackson's current market price is $40.00, what is the stock's expected rate of return (nearest .01 percent)?
What is the project's discounted payback?
Jeff believes that Microsoft stock will move significantly in either direction with the release of the next version of Windows. Jeff wants to design a strangle strategy to take advantage of the possible move in the stock price. Should Jeff embark on ..
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