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Next year’s numbers include these:
EBIT = 1,000
Depreciation = 250
Taxes = 100
Net increase in Working Capital = 50
Net Increase in Capital Expenditure = 250
Long-term sustainable growth = 4%
Risk free rate = 3%
Beta = 1.5%
Equity Risk Premium = 7%
D/E = 0.333
Investment = -$10,000 (occurs at time = 0)
Cost of debt (prior to tax adjustment) = 7%
Corporate tax rate = 33%
FIND: Net Present Value (NPV). Use CFFA for cash flow and WACC for the discount rate.
A. -533
B. 677
C. 11,644
D. -255
F. 1,644
G. 839
Louise Manufacturing uses 2,800 switch assemblies per week and then reorders another 2,800. If the relevant carrying cost per switch assembly is $6.20 and the fixed order cost is $1,200, is the company's inventory policy optimal? Why or why not?
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