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Fairfax Pizza sells pizza in Northern Virginia and is evaluating the stadium project, which would involve selling pizza in the baseball stadium for 2 years, starting today. Based on the following information, what is the net present value of the stadium project? The project would involve an initial investment in equipment of 145,000 dollars today. Cash flows from capital spending would be 0 dollars in year 1 and 10,000 dollars in year 2. To finance the project, Fairfax Pizza would borrow 145,000 dollars. The firm would receive 145,000 dollars from the bank today and would pay the bank 163,850 dollars in 2 years (consisting of an interest payment of 18,850 dollars and a principal payment of 145,000 dollars). There would be no loan payments in 1 year. Operating cash flows are expected to be 78,300 dollars in year 1 and 82,650 dollars in year 2. The tax rate is 30 percent. The cost of capital is 10.87 percent.
Consider an asset that costs $974,000 and is depreciated straight-line to zero over its ten-year tax life. The asset is to be used in a seven-year project; at the end of the project, the asset can be sold for $136,000. If the relevant tax rate is 30 ..
The “Brasher doubloon,” which was featured in the plot of the Raymond Chandler novel The High Window, was sold at auction in 2014 for $4,582,500. The coin had a face value of $15 when it was first issued in 1787 and had been previously sold for $430,..
Scott purchased 200 shares of Frozen Foods stock for $48 a share. Four months later, he received a dividend of $0.22 a share and also sold the shares for $42 each. What was his annualized rate of return on this investment?
John Friedman is in the 40 percent personal tax bracket. He is considering investing in HCA bonds that carry a 12 percent interest rate. What is his after-tax yield (interest rate) on the bonds?
Tanner Inc. reports 2,858,000 stock options granted during fiscal 2014 at a weighted-average fair-value of $15.40. The average vesting period for these options is four years. Tanner should record a $44,013,200 expense on its income statement related ..
You buy a house for $150,000 using a 30-year mortgage at 4.5% interest to be paid monthly.1. What is your payment? 3. Your generous parents agree to give you $10,000 toward your home 4.They offer either to make a down payment (lessening the principal..
High electricity costs have made Farmer Corporation’s chicken-plucking machine economically worthless. Only two machines are available to replace it. The International Plucking Machine (IPM) model is available only on a lease basis. Farmer is in the ..
Operating expenses, other than depreciation, for the year were $563,000. Accrued expenses decreased by $47,000. Using the direct method, determine the cash payments for operating expenses to be reported on the cash flow statement.
Stock A expected return 8%, standard deviation 40%; stock B expected return is 13%, standard deviation is 60%.The correlation between these two stocks is -1. Can a particular portfolio constructed by stock A and stock B be a substitute for risk-free ..
What is the duration of assets that would be necessary to immunize the market value of equity from interest rate changes for this bank's portfolio holding the D1 constant and compute the slope of the Capital Market Line (CML) when the risk-free ra..
Compact fluorescent lamps (CFLs) have become more popular in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent light bulb costs $0.47 and lasts for 1,000 hours. A 15-watt CFL, which provides the same light, costs ..
Cyclone Software Co. is trying to establish its optimal capital structure. Its current capital structure consists of 30% debt and 70% equity; however, the CEO believes the firm should use more debt. The risk-free rate, rRF, is 6%; the market risk pre..
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