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Scissor tail Partners is evaluating a proposal to purchase two idle manufacturing facilities located near Blackwell, Oklahoma. The combined cost of purchasing these properties would be $20 million. Each facility has 3000 amps of 480 volt 3 phase electrical power and close proximity to the air cargo facilities at Cherokee Strip regional airport. However, an immediate expenditure of $10 million dollars will be required to install cleanrooms in each facility and bring the electrical wiring into compliance with local building codes. The total time required to upgrade and resell both properties is expected to span four years. The CFO for Scissortail projects that at the end of two years the first facility can be sold for $30 million. The second facility, whose configuration is somewhat less desirable, will take four years to sell, with an expected selling price of $18 million. Revisions to the tax code designed to help stimulate the economy exempt any profits from renovating idle manufacturing capacity from all State and Federal taxes. Assuming that the date 2 cash flows from the project can be reinvested at an annual rate of 3.50 percent:
a. determine the internal rate of return for the project.
b. determine the reinvested rate of return for the project.
c. concisely explain why the reinvested rate of return is greater than or less than the internal rate of return for the project (no points will be awarded for a simple comparison of the internal rate of return and the reinvested rate of return).
Consider the following information about three stocks: Rate of Return If State Occurs State of Probability of Economy State of Economy Stock A Stock B Stock C Boom .26 .26 .38 .55 Normal .50 .21 .19 .17 Bust .24 .05 −.38 −.46. If your portfolio is in..
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Calculate the end-of-year balance for accounts receivable.
Trevor Price bought 10-year bonds issued by Harvest Foods five years ago for $914.46. The bonds make semiannual coupon payments at a rate of 8.4 percent. If the current price of the bonds is $1,001.17, what is the yield that Trevor would earn by sell..
What would be your percentage return on investment if you bought when rates were 9 percent and sold when rates were 8 percent?
Compute the expected payoff for each project and state which one you would adopt if you were operating the firm in the shareholders' best interests? Why?
Mikkelson Corporation's stock had a required return of 11.75% last year, when the risk-free rate was 5.50% and the market risk premium was 4.75%. Then an increase in investor risk aversion caused the market risk premium to rise by 2%. The risk-free r..
Franchising, Inc. is considering a major investment. The investment will have an initial cost of $728,000. What is the internal rate of return?
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Dig into history and share one political event that had a profound effect on stock markets, the economy as a whole. Write at least one paragraph on the event and how it affected the financial markets?
Assuming straight-line depreciation to zero, what is the IRR of this project?
The index was at 392.54, the continuously compounded risk- free rate was 2.83%, the dividend yield was 2.08%, and the contract expired on September 20.
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