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Assume that the correct future cash flow is $100 and the correct discount rate is 10%. Consider the value effect of a 5% error in cash flows and the effect of a 5% error in discount rates.
(a) Graph the value effect (both in absolute values and in percent of the correct upfront present value) as a function of the number of years from 1 year to 20 years.
(b) Is this an accurate real-world representation of how your uncertainty about your own calculations should look?
If the overall company weighted average cost of capital (WACC) were used as the hurdle rate for all divisions, would more conservative or riskier divisions get a greater share of capital? Explain your reasoning.
The net present value is a measure of profits expressed in today's dollars. The net present value is positive when the required return exceeds the internal rate of return. If the initial cost of a project is increased, the net present value of that p..
Suppose Stark Ltd. just issued a dividend of $2.24 per share on its common stock. The company paid dividends of $1.80, $1.98, $2.05, and $2.16 per share in the last four years. If the stock currently sells for $45, what is your best estimate of the c..
A proposed cost-saving device has an installed cost of $640,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes. The required initial net working capital investment is $46,000, the margi..
Mike French wishes to determine how long it will take to repay a loan with initial proceeds of $14,000 where annual end-of year instalment payments of $2,450 are required.
USAco, a domestic corporation, manufactures and sells widgets in the U.S. and worldwide through its two wholly-owned foreign subsidiaries. USAco’s Hong Kong subsidiary, HKco, earns $100,000 of foreign-source income from sales in Hong Kong and pays $2..
Sun Sports has a unlevered cost of capital of 11%, a cost of debt of 7%, and a tax rate of 40%. What is the cost of equity if the debt-equity ratio is 0.50?
Cnooc, a Chinese public-sector company, has made a bid to purchase Unocal, a big U.S oil company, for $18.5 billion in June 2005. Treat this as an initial investment made by Cnooc in this two-year, U.S based project. If the after-tax cash flows gener..
Say you decide to start a firm and you need $500 million of capital to begin. You sell stock for its par value, a total of one million shares (par value is $200 per share), and sell $300 million of bonds at par value. Assume that the market expects t..
Depreciation:
Find an existing budget from a published source. Detail should be extensive enough to present a challenge. Use this checklist for building a budget and critque your work. what is the proposed volume for the new budget period? what is the appropriate ..
project required by thursday 4th december 2014..kindly quote
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