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Stephen and Cory, Inc., invites bids for supply of 200,000 units of widget lids a year. You would like to bid on the contract. The plant manager believes that it would be cheaper to make these lids rather than buy them. Direct production costs are estimated to be only $1.50 a lid. The necessary machinery would cost $150,000. The investment could be written off using straight line method of depreciation to value of zero over a period of 5 years. Machine can be sold in the market at a price of $50,000 at the end of five years. There are no fixed costs. The plant manager estimates that the operation would require working capital of $30,000 but argues that this sum can be ignored since it is recoverable at the end of the 5 years. The company pays tax at a rate of 34 percent and the opportunity cost of capital is 15 percent. Determine the bid price for this contract. If Stephen and Cory do not want to pay more than $1.60 per unit, can you still supply them at that price?
Bullseye, Inc.'s 2008 income statement lists the following income and expenses: EBIT = $703,000, Interest expense = $54,500, and Taxes = $220,000. Bullseye's has no preferred stock outstanding and 330,000 shares of common stock outstanding. What are ..
Consider two stocks. If all their characteristics remain the same except for the correlation coefficient, which value of the correlation would make a portfolio of these two stocks the least risky?
Calculate the marginal tax rate obtained for a 30-year mortgage loan at 6.75 percent and a 15-year mortgage loan at 6.5 percent and determine the tax savings for Sue on each of the mortgages.
The stock of Bruin, Inc., has an expected return of 18 percent and a standard deviation of 32 percent. The stock of Wildcat Co. has an expected return of 10 percent and a standard deviation of 36 percent. The correlation between the two stocks is .36..
Given your individual risk profile, be it an aversion to risk or a high tolerance for risk; and, the current relatively low level of interest rates would you invest today in an asset, like a US Government Bond, that has a long term fixed cash flow as..
You have $430,000 in your retirement account, If you plan to retire immediately and decide to invest in an equity which pays 6% interest for future use. What is the value of your equal withdrawals for the next 30 years.
Stock A has a beta of .8, and investors expect it to return 9%. Stock B has a beta of 1.2, and investors expect it to return 13%. Use the CAPM to find the expected rate of return on market and the market risk premium.
Capital Budgeting in Not for Profits Are the capital budgeting criteria discussed in chapter 9 of the Ross text applicable to not for profit corporations? How should such entities make capital budgeting decisions? What about the US Government? Should..
Calculating yields. Assume you purchased a corporate bond at its current market price of $850 on January 2, 2002. It pays 9 percent interest and it will mature on December 31, 2011, at which time the corporation will pay you the face value of $1,000.
A few years ago Spider web inc issued with a 11.79 percent annual coupon rate paid semiannually. The bonds have a par value of $1,000 a current price of $702 and will mature in 23 years. What would the annual yield to maturity be on the bonds if you ..
Elly's hot dog emporium is famous for its chilidogs. Elly's latest sales indicate that 25% of the customers ordering her chilidogs order it with hot peppers. Suppose 17 customers are selected at random. What is the probability that fifteen or more cu..
Prepare a statement showing the incremental cash flows
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