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1. During 1998, the Senbet Discount Tire Company had gross sales of $1 million. The company’s cost of goods sold and selling expenses were $300,000 and $200,000, respectively. These figures do not include depreciation. Senbet also had notes payable of $1 million. These notes carried an interest rate of 10 percent. Depreciation was $100,000. Senbet’s tax rate in 1998 was 35 percent. a. What was Senbet’s net operating income? b. What were the company’s earnings before taxes? c. What was Senbet’s net income? d. What was Senbet’s operating cash flow? 2. Consider the following cash flows on two mutually exclusive projects that require an annual return of 15 percent. Working in the financial planning department for the Bahamas Recreation Corp., you are trying to compare different investment criteria to arrive at a sensible choice of these two projects. Year Fishing Ride Deepwater New Submarine 0 _$600,000 _$1,800,000 1 270,000 1,000,000 2 350,000 700,000 3 300,000 900,000 a. Based on the discounted payback period rule, which project should be chosen? b. If your decision rule is to accept the project with a greater IRR, which project should you choose? c. Since you are fully aware of the IRR rule’s scale problem, you calculate the incremental IRR for the cash flows. Based on your computation, which project should you choose? d. To be prudent, you compute the NPV for both projects. Which project should you choose? Is it consistent with the incremental IRR rule? 3. Calgary Industries, Inc., is considering a new project that costs $25 million. The project will generate after-tax (year-end) cash flows of $7 million for five years. The company has a debt-to-equity ratio of 0.75. The cost of equity is 15 percent and the cost of debt is 9 percent. The corporate tax rate is 35 percent. It appears that the project has the same risk as that of the overall company. Should Calgary take on the project? 4. Explain what are the corporation’s advantages and disadvantages of the corporation form?
Typical financial statement fraud techniques involved the overstatement of revenues and assets. Over half the frauds involved overstating revenues through recording revenues prematurely or fictitiously.
Tax rate was= 36.6%. Determine the amount of costs acquired by firm for last year?
Firm L has debt with a market value of $200,000 and a yield of 9 percent. The company's equity has a market value of $300,000, its earnings are growing at a 5% rate, and its tax rate is 40 percent.
Risk as well as return computation using capital asset pricing model and If the market risk premium is 8%, the risk-free rate of return is
Investing $1,000,000 for six months. Planning purchasing US T Bills at 1.810% six month rate, not yearly, matures in 26 weeks. Spot Exchange Rate is $1.00/Yen100,
Computation of current price of the bond and what price would you be willing to pay for the bond
Assume that one-year treasury bills yield 4% in the United State and 5 percent in Germany. Investors will be indifferent between them if they expect the dollar over the next year to.
Assume you are aware of the following investment opportunity: You could open a coffee shop around the corner from your home for $25,000. IF business is strong, you could net $15,000 in after tax cash flows each year over next 5-years.
Steve Smith, owner of Steve's Bowling Alley, generated $30,000 in sales for the month of January. "Regular" customers are allowed to play on account.
Calculate the past growth rate earnings. (Hint: this is a 5 year growth period. and Evaluate the next expected dividend per share, D1 [D0=0.4($6.50) =$2.60]. Assume that the past growth rate will continue.
A company has raised $80 million from selling stocks. It wants to take part in a venture that requires $40 million this year, its annual after tax cash flow over the next seven years will be only $325,000.
Managers should not focus on current stock price because doing so will lead to overemphasis on short term benefits at expense of long-term profits.
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