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You are evaluating a project for your company. You estimate the sales price to be $10 per unit and sales volume to be 3,000 units in year 1; 10,000 units in year 2; and 1,000 units in year 3. The project has a three-year life. Variable costs amount to $3 per unit and fixed costs are $25,000 per year. The project requires an initial investment of $50,000 in assets that will be depreciated straight-line to zero over the three-year project life. The actual market value of these assets at the end of year 3 is expected to be $10,000. NWC requirements at the beginning of each year will be approximately 25 percent of the projected sales during the coming year. The tax rate is 34 percent and the required return on the project is 15 percent. What change in NWC occurs at the end of year 1?
Compute the annual interest payments and principal amount for a Treasury Inflation-Protected Security with a par value of $1,000 and a 3-percent interest rate if inflation is 4 percent in year 1, 5 percent in year 2, and 6 percent in year 3.
A parent decides to buy a two bedroom condo for 65,000 by putting 10% down and financing the rest for 15 years at an annual rate of 3.5%. What is the monthly payment? One bedroom rented out to a roomTe for $400 a month. After 4 years, the parent Ella..
If firm A has a higher debt-to-equity ratio than firm B, then
A firm has a long-term debt-equity ratio of .4. Shareholders’ equity is $1 million. Current assets are $200,000, and the current ratio is 2. The only current liabilities are notes payable. What is the total debt ratio?
Sisi Huang received $12,000 from a lottery. She uses this money to purchase two dif- ferent annuities, each costing $6,000. The first annuity is a 24-year annuity-immediate paying $K per year, and the second is an 8-year annuity-immediate paying $2K ..
What are the likely consequences if a multi-business firm uses its WACC to evaluate all proposed investment projects?
Consider the expectations theory (of the term structure) with a term premium. What is the interest rate on a 5-year bond today if the term premium for a 5-year bond is 2% and 1-year interest rates are expected to remain constant at their current leve..
It is frequently stated that the one purpose of the pre-emptive right is to allow individuals to maintain their proportionate share of the ownership and control of a corporation. How important do you suppose control is for the average stockholder of ..
You placed $5,139 in a saving account today that earns an annual interest rate of 19.95 percent, compounded semi-annually. How much will you have in this account at the end of 8 years? Assume that all interest received at the end of the period is rei..
Which of the following requires an accounting transfer at fair market value from retained earnings?
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..
Dew Drop In, Inc. announces is quarterly dividend will increase from $3.80 to $4.00. After the announcement, the price of Dew Drop In, Inc.'s stock drops.
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