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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 115,000 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 $820,000 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 $65,000. Your fixed production costs will be $320,000 per year, and your variable production costs should be $9.80 per carton. You also need an initial investment in net working capital of $70,000. Assume your tax rate is 35 percent and you require a 12 percent return on your investment. a. Assuming that the price per carton is $16.50, what is the NPV of this project? b. Assuming that the price per carton is $16.50, find the quantity of cartons per year you need to supply to break even. c. Assuming that the price per carton is $16.50, find the highest level of fixed costs you could afford each year and still break even.
Romo Enterprises needs someone to supply it with 122,000 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 $890,000 to install the equipment nec..
You are considering a stock investment in one of two firms (AllDebt, Inc., and AllEquity, Inc.), both of which operate in the same industry and have identical operating income of $7.00 million. Calculate the income available to pay the asset funders ..
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You are considering expanding your product line that currently consists of skateboards to include gas-powered skateboards, and you feel you can sell 9,000 of these per year for 10 years (after which time this project is expected to shut down with sol..
A Treasury bond with the longest maturity (30 years) has an ask price quoted at 99:01. The coupon rate is 4.30 percent, paid semi annually. What is the yield to maturity of this bond?
What is the price of the floating-rate preferred stock most likely to be?
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Suppose the exchange rate is $1.547 per euro. If the dollar depreciates by 11% against the dollar, how many Euros would a dollar buy tomorrow?
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