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A company is considering two alternative methods of producing a new product. The relevant data concerning the alternatives are presented below. Alternative I ?II Initial investment $64,000 $120,000 Annual receipts $50,000 $60,000 Annual disbursements $20,000 $12,000 Annual depreciation $16,000 $20,000 Expected life 4 yrs 6 yrs Salvage value 0 0 At the end of the useful life of whatever equipment is chosen the product will be discontinued. The company's tax rate is 50 percent and it cost of capital is 10 percent. a. Calculate the net present value of each alternative. b. Calculate the benefit cost ratio for each alternative. c. Calculate the internal rate of return for each alternative. d. If the company is not under capital rationing which alternative should be chosen? Why? e. Again assuming no capital rationing, suppose the company plans to produce the product indefinitely rather than quit when the equipment wears out. Which alternative should the company select? Why? f. If the company is experiencing severe capital rationing, and plans to terminate production when the equipment wears out, would any of your answers above change?
What will be the dollar value of the management team's original $2 million equity investment at the time of the liquidity event?
What combination of stock types would you invest in and why? Use the stock types I talked about in my slides: blue chip, income, cyclical, defensive, growth, large cap, mid cap, small cap, and penny stocks.
from books of aggarwal bors following information has been extracted rs. sales 240000 variable costs 144000 fixed costs
If the interest rate in the United Kingdom is 7 percent, the interest rate in the United States is 8 percent, the spot exchange rate is $1.742/£1, and interest rate parity holds, what must be the one-year forward exchange rate?
How is the fun's weighted cost of capital influenced by the firm's capital structure and describe the role of the firm's tax rate in cost of capital calculations?
Suppose you sell a fixed asset for $50,000 when its book value is $60,000. If your company's marginal tax rate is 40%, what will be the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)?
hedging currency risks at aifs harvard business school case 9-205-026 2007.instructions this case should be done
D’Angelo Barksdale is considering an annuity which costs $160,000 today. The annuity pays $17,500 a year at an annual interest rate of 7.50 percent. What is the length of the annuity time period?
Toyota has exposed assets of ¥7 billion and exposed liabilities of ¥5 billion. During the year, the yen appreciates from ¥110/$ to ¥80/$. What is Toyota's net translation exposure at the beginning of the year in yen? In dollars? What is Toyota's tran..
What material types of transactions and transaction cycles are involved and what are the high-risk areas - How does the company compare with others in the industry?
This case analyzes the problems facing a bank in a foreign country and the reasons for deciding to stay or to close its operation. Royal Bank of Canada is the bank involved in this real life situation.
A company paid $1.65 dividend yesterday. Its dividend growth rate is expected to be constant at 22.40% for 2 years, after which dividends are expected to grow at a rate of 6.85% forever. Its required return (rs) is 10.55%. What is the best estimate o..
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