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You are considering opening a new plant. The plant will cost$100 million upfront and will take one year to build. After that, it is expected to produce profits of $30 million at the end of every year of production. The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 8%. Should you make the investment? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged.
Find out the degree of operating leverage? If units sold rise from 8,000 to 8,500, what will be the rise in operating cash flow? What is the new degree of operating leverage?
A bank has $ 10 million in vault cash and $ 110 million in deposits. If total bank reserves were $ 15 million with $ 2 million considered to be excess reserves, what requires reserves ratio is implied?
Company A shares are currently trading at $50 per share. A survey of Wall Street analysts disclose that EPS expectations for firm A for the full year 2003 are $2.50 per share.
The appropriate discount rate is 10 percent. What is the financial break-even point for the project?
What is the future value of this cash flow stream at the end of year 5 if the cash flows are invested at 10% annually?What is the present value of this future value whan discounted at 10%? What does this result indicate about the consistency inher..
Valuation of cash flows and purchase price of equipment with changes in the exchange rates
Suppose that a firm has following Income Statement. Use this information to estimate the business risk and the financial risk as measured by the degree of operating leverage.
Calculate the price of a call option on stock of Dynamic Inc. given the following information: the current price of a share of Dynamic Inc. is $60.
However, the space occupied by the production of the valve can be used by another production group that is currently leasing space for $55,000 per year.
If the beta of Microsoft is 1.11, risk-free rate is 3% and the market risk premium is 8%, calculate the expected return for Microsoft.
However, competitive pressures and increased costs are expected to shrink margins to 11% in years 4 and 5. Taxes will remain at 40% and the WACC for ABC company is 12%.
What is the additional profit associated with running larger batch sizes through the powder-coating process?
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