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Firm considers project which requires an immediate investment of $100, and generates operating cashflows (OCF) in the amount of $40 at the end of each of the next four years. At the end of the fourth year the firm will also generate an after tax cashflow from the sale of equipment and payment of any associated tax on the gain or loss on the sale. Assume the WACC =30%. How much must the after tax cashflow from the sale of equipment (at time 4) be such that the firm earns an acceptable rate of return on the project? Assume that at time 4 the book value of the asset is $5, and assume a 20% tax rate on any gain/loss on the sale. For how much must the equipment be sold to generate this return?
Woidtke Manufacturing's stock currently sells for $32 a share. The stock just paid a dividend of $2.75 a share (i.e., D0 = $2.75), and the dividend is expected to grow forever at a constant rate of 4% a year. What stock price is expected 1 year from ..
Gateway Communications is considering a project with an initial fixed asset cost of $2.46 million which will be depreciated straight-line to a zero book value over the 10-year life of the project. At the end of the project the equipment is scrapped. ..
A stock you are evaluating just paid an annual dividend of $2.50. Dividends have grown at a constant rate of 1.5 percent over the last 15 years and you expect this to continue. (LG 3-3) If the required rate of return on the stock is 12 percent, what ..
Eli Lily is very excited because sales for his nursery and Plant Company are expected to double from $600,000 to $1,200,000 next year. Eli notes that net assets (assets-liabilities) will remain at %50 of sales. His firm will enjoy an 8 percent return..
A company has just paid a dividend of 4.19$. Its discount rate is 8.3%, and the expected perpetual growth rate is 3.8%. What is the stock's Capital Gain Yield?
You are looking at a one-year loan of $15,000. The interest rate is quoted as 10.0 percent plus two points. A point on a loan is simply 1 percent (one percentage point) of the loan amount. Quotes similar to this one are common with home mortgages. Th..
Crazee Enterprises Corporation just paid a dividend and it expects that dividend to grow by 10 percent for the next three years. After that, the dividend is expected to grow at a constant rate of 5 percent in perpetuity. If the company's stock is cur..
Morrison Company sold a noncallable bond several years ago that now has 20 years to maturity. This bond has 9.25% annual coupon, paid semiunnually, sells at a price of $1,075, and has a par value of $1,000. If the firm's tax rate is 40%, what is the ..
A corporation is considering expanding operations to meet growing demand. With the capital expansion, the current accounts are expected to change. Management expects cash to increase by $20,000, accounts receivable by $40,000, and inventories by $60,..
Suppose you hold LLL employee stock options representing options to buy 10,000 shares of LLL stock. You wish to hedge your position by buying put options with three-month expirations and a $28.58 strike price. LLL accountants estimated the value of t..
Describe a real company’s dividend policy and try to explain why it is preferable to other dividend policy. Please include reference links on where you found your information.
Two firms, X and Y, both produce widgets. The price of widgets is $1 each. Firm X has total fixed costs of $500,000 and variable costs of .50 per widget. Firm Y has total fixed costs of $220,000 and variable costs of .75 per widget. The corporate tax..
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