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To solve the bid price problem presented in the text, we set the project NPV equal to zero and found the required price using the definition of OCF. Thus the bid price represents a financial break-even level for the project. This type of analysis can be extended to many other types of problems. Romo Enterprises needs someone to supply it with 125,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It will cost you $920,000 to install the equipment necessary to start production; you’ll depreciate this cost straight-line to zero over the project’s life. You estimate that, in five years, this equipment can be salvaged for $75,000. Your fixed production costs will be $330,000 per year, and your variable production costs should be $10.80 per carton. You also need an initial investment in net working capital of $80,000. Assume your tax rate is 34 percent and you require a 10 percent return on your investment. . 1. Assuming that the price per carton is $17.50, what is the NPV of this project? 2.Assuming that the price per carton is $17.50, find the quantity of cartons per year you need to supply to break even. 3. Assuming that the price per carton is $17.50, find the highest level of fixed costs you could afford each year and still break even.
A purchaser pays 500,000 for a mine which will be exhausted at the end of 30 years. Find the required level annual revenue (received at the end of each year) in order for the purchaser to receive a 7% annual return on his investment if he can recover..
what is the net amount received by the corporation if it acts rationally?
The Copycat Firm wants to raise $10 million to expand its business. To accomplish this, it plans to sell 30-year, $1,000 face value zero-coupon bonds. The bonds will be priced to yield 6%. What is the minimum number of bonds it must sell to raise the..
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Its basic earning power (BEP) ratio is 17%, and its return on assets (ROA) is 5%. What is its times-interest-earned (TIE) ratio?
Determine the monthly payment required to amortize a $750, 000 mortgage over a 25 year period if you put a 20% down payment on your home,
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