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Pappy’s Potato has come up with a new product, the Potato Pet (they are freeze-dried to last longer). Pappy’s paid $132,000 for a marketing survey to determine the viability of the product. It is felt that Potato Pet will generate sales of $587,000 per year. The fixed costs associated with this will be $191,000 per year, and variable costs will amount to 22 percent of sales. The equipment necessary for production of the Potato Pet will cost $644,000 and will be depreciated in a straight-line manner for the four years of the product life (as with all fads, it is felt the sales will end quickly). This is the only initial cost for the production. Pappy’s is in a 30 percent tax bracket and has a required return of 13 percent.
Netscrape Communications does not currently pay a dividend. You expect the company to begin paying a $2.2 per share dividend in 8 years, and you expect dividends to grow perpetually at 3.2 percent per year thereafter. If the discount rate is 14 perce..
Jane plans to borrow from a bank to finance her investment in a real estate project. She considers an ARM loan with three-year loan term, $100,000 loan amount. If the loan will be repaid after 3 years, what would be the monthly payment and the endin..
The hedge ratio of an at-the-money call option on IBM is 0.17. The hedge ratio of an at-the-money put option is ?0.54. What is the hedge ratio of an at-the-money straddle position on IBM? (Negative value should be indicated by a minus sign. Round you..
What is the expected return on an equally weighted portfolio of these three stocks? What is the variance of a portfolio invested 18 percent each in A and B and 64 percent in C?
On Sept 30th, the Disney Corp had a Retained Earnings balance of $7,933 million. One year later it had jumped to $9,557 million. They sold no stock during the year but did pay $442 million in common dividends. Their DPS = $0.51. Given this informatio..
Suppose you buy a 7 percent annual coupon bond today for $960. The bond has 6 years to maturity. The face value of the bond is $1,000. What is the YTM of the bond? Assume that your investment horizon is equal to the duration of the bond. Assume that ..
Ashes Divide Corporation has bonds on the market with 17 years to maturity, a YTM of 10.0 percent, and a current price of $1,216.50. The bonds make semiannual payments. What must the coupon rate be on these bonds?
What are the various factors that differentiate average business writers from expert business writers? Explain why each is important.
Seth Bullock, the owner of Bullock Gold Mining, is evaluating a new gold mine in South Dakota. Dan Dority, the company's geologist, has just finished his analysis of the mine site. Construct a spreadhseet to calculate the payback period, internal rat..
bullwhat is net present value npv how is it calculated and what is the basic premise of its decision rule?bullwhat is
Henry Corporation has 20M shares outstanding, $80M in debt and $5M in excess cash. Its expected free cash flow next year is expected to be $12.6M and will grow at 5% a year in perpetuity. Its cost of equity is 12%, weighted average cost of capital is..
It is January 2nd. Senior management of Chester meets to determine their investment plan for the year. They decide to fully fund a plant and equipment purchase by issuing 50,000 shares of stock plus a new bond issue. The CFO happily notes this will r..
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