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The Bluestone Mining Company is considering three expansion plans. The first, Plan A, is to spend $325 million on a massive expansion of their strip mine in Western Australia. This expansion is expected to yield an additional $25 million per year in cash flow over the next 10 years of production. At the end of the production period, Bluestone will need to spend $10 million to return the expansion site to its original condition. The second proposal, Plan B, is to replace the technology at the Western Australia site lowering annual operating costs by $20 million per year. The new technology costs $50 million to implement and has an expected useful life of 10 years. The third option, Plan C, is to acquire the assets of a small independent mining operation in South Africa for $200 million in cash. The South Africa operation is expected to generate an initial cash flow of $15 million per year which is expected to grow 10% annually thereafter. Bluestone’s cost of capital is 10%. Which expansion plan is the best financial decision for Bluestone since they can choose only one, and why?
Compute the total dollar interest payments if long-term financing at 12 percent had been utilized throughout the six months.
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Your firm's strategic plan calls for a net increase in total assets of $100 million during the next five years,
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Suppose further that the interest rate remained at 6% for the next 8 years. What would happen to the price of the bonds over time?
JKL Corporation is a company devoted primarily to paper products. JKL Corp. has an equity beta of 1.0 and a debt ratio, i.e. a debt-to-asset ratio (D/(D+E)),
How large of a sales increase can the company achieve without having to raise funds externally?
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