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Gateway Communications is considering a project with an initial fixed asset cost of $2.46 million which will be depreciated straight-line to a zero book value over the 10-year life of the project. At the end of the project the equipment is scrapped. The project will increase pre-tax revenues to the firm by $725,000 a year. The tax rate is 35 percent. If the firm requires a 14 percent rate of return what is the Net Present Value of this project?
O’Connell & Co. expects its EBIT to be $74,000 every year forever. The firm can borrow at 7 percent. O’Connell currently has no debt, and its cost of equity is 12 percent and the tax rate is 35 percent. The company borrows $125,000 and uses the proce..
Risk and Return, Coefficient of Variation. Based on the following information, calculate the coefficient of variation and select the best investment based on the risk/reward relationship:
Now assume that Wendt does not receive the interest income but does receive an Additional $1 million as dividends on some stock it owns. What is the tax on this dividend income?
Under typical circumstances the cost of debt is lower than the cost of equity. List two reason why. Do not use flotation costs and taxes on dividends as reasons.
A firm with a normalized pretax income of $40 million, 25% tax rate, and a Total Debt/Total Capital ratio of 30%, decides to undertake a capital expansion financed by new debt. How would your answer change if the debt was unsecured? Specifically, wha..
You start work at a new firm and learn that it's company policy to never take a trade discount. When you ask your boss about this, she says the firm needs the trade credit to avoid borrowing more money. You tell her it would be cheaper to borrow than..
The risk-free rate of interest is 3% and the market risk premium is 5%. Alpha Company’s hardware division has an asset beta of 1.4, a free cash flow of $450 million, and an expected growth rate of 4.0%. The value of the hardware division (in $million..
Erika and Kitty, who are twins, just received $35,000 each for their 25th birthdays. They both have aspirations to become millionaires. Each plans to make a $5,000 annual contribution to her "early retirement fund" on her birthday, beginning a year f..
Integrated Potato Chips paid a $2.40 per share dividend yesterday. You expect the dividend to grow steadily at a rate of 6% per year. a. What is the expected dividend in each of the next 3 years?
A 150% local currency return in Brazil is higher than a 15% dollar return in the U.S. If annualized interest rates in the U.S. and Sweden are 9% and 13%, respectively, and the spot value of the Swedish krona is $.1090, then at what 180 day forward ra..
You have just purchased a new warehouse. To finance the purchase, you've arranged for a 25-year mortgage for 80 percent of the $1,800,000 purchase price. The monthly payment on this loan will be $10,800. What is the APR?
explain how the ebit chart works inputs determining the outputs-the two lines on the chartand the indifference point in
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