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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 121,000 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 $880,000 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 $71,000. Your fixed production costs will be $326,000 per year, and your variable production costs should be $10.40 per carton. You also need an initial investment in net working capital of $76,000. Assume your tax rate is 30 percent and you require a 11 percent return on your investment. a. Assuming that the price per carton is $17.10, what is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV $ b. Assuming that the price per carton is $17.10, find the quantity of cartons per year you need to supply to break even. (Do not round intermediate calculations and round your answer to nearest whole number.) Quantity of cartons c. Assuming that the price per carton is $17.10, find the highest level of fixed costs you could afford each year and still break even. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Fixed costs $
Beam inc. bonds are trading today for a price of $588.12. the bond currently has 23 years until maturity has a yield to maturity of 9.45%. the bond pays annual coupons and the next coupon is due in one year. what is the coupon rate of the bond?
Good Luck Corporation, a calendar–year, accrual-basis Corporation, has $500,000 of gross receipts and $320,000 of expenses from its service business. What is Good Luck Corporation’s taxable income and income tax liability for the current tax year? Wh..
Assume the following information regarding U.S. and European annualized interest rates:
What’s the present value of $4,500 discounted back 5 years if the appropriate interest rate is 4.5%, compounded semi-annually?
A firm evaluates all of its projects by using the NPV decision rule.
Consider a bond paying a coupon rate of 8.25% per year semiannually when the market interest rate is only 3.3% per half-year. The bond has two years until maturity. Find the bond's price today and six months from now after the next coupon is paid. Wh..
Procter and Gamble? (PG) paid an annual dividend of $1.76 in 2009. use the? dividend-discount model to estimate its value per share at the end of 2009.
Hank purchased a $28,000 car two years ago using a 8 percent, 4-year loan. He has decided that he would sell the car now, if he could get a price that would pay off the balance of his loan. What’s the minimum price Hank would need to receive for his ..
Weak form efficiency is best defined as a market where current prices are based on:
Sanders Enterprises, Inc., has been considering the purchase of a new manufacturing facility for $280,000. The facility is to be fully depreciated on a straight-line basis over seven years. It is expected to have no resale value after the seven years..
What is the payback period of this investment? According to the NPV rule, should you make this movie?
Great Lakes Clinic has been asked to provide exclusive healthcare services for next year’s World Exposition. Although flattered by the request, the clinic’s managers want to conduct a financial analysis of the project. An up-front cost of $160,000 is..
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