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Gateway Communications is considering a project with an initial fixed asset cost of $2.872 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 will be sold for an estimated $300,000. The project will not directly produce any sales but will reduce operating costs by $714,000 a year. The tax rate is 35 percent. The project will require $52,000 of inventory which will be recouped when the project ends. What is the net present value at the required rate of return of 13.6 percent?
Cray-Z Consultants provides management accounting advice to not-for-profit firms. It employs three levels of consultants, based on experience and education: partner, senior, and associate. When Cray-Z considers bidding on jobs, it estimates the costs..
Daily Enterprises is contemplating the acquisition of some new equipment. The purchase price is $33,000. The equipment has a 4-year life. The equipment can be leased for $9,000 a year. The firm can borrow money at 7 percent and has a 35 percent tax r..
Both the inventory conversion period and payables deferral period use the average daily COGS in their denominators, whereas the average collection period uses average daily sales in its denominator. Why do these measures use different inputs?
Calculate the combined value of the proposed acquisition and calculate the net present value of the proposal
Shifting Future Expenses to the Current Period as a Special Charge A company might choose to accelerate discretionary expenses, such as repairs and maintenance, into the current period if the current year’s revenue is relatively high in relation to e..
Primrose Corp has $17 million of sales, $2 million of inventories, $3 million of receivables, and $1 million of payables. Its cost of goods sold is 85% of sales, and it finances working capital with bank loans at an 7% rate. What is Primrose's cash c..
The stock of Alpha Company has an expected return of 16.25% and a beta of 1.35, and Gamma Company stock has an expected return of 10.50% and a beta of X. The beta of a portfolio P is 1.05. The portfolio P consists of 40% of the investment in Alpha an..
Assume that you manage a $10.00 million mutual fund that has a beta of 1.05 and a 9.50% required return. The risk-free rate is 2.20%. You now receive another $4.50 million, which you invest in stocks with an average beta of 0.65. What is the required..
Assume that the risk-free rate is 5% and the market risk premium is 7%. What is the expected return for the overall stock market?
Suppose that a health care organization had revenues of $300,000 for March and that the payer mix is as follows: PAYER PERCENT OF PATIENTS PAYMENT LAG Medicare 40 3 months Medicaid 20 3 months Blue Cross 15 2 months Other insurer 15 1 month Self-pay ..
The returns on stocks A and B are perfectly negatively correlated (\rho_{AB} = -1). Stock A has an expected return of 21 % and a standard deviation of return of 40%. Stock B has a standard deviation of return of 20%. The risk-free rate of interest is..
One year ago Clark Company issued a 10-year, 13% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 6 years at a price of $1,065, and it now sells for $1,270. What is the bond's nominal yield to maturity?
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