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Incremental Cash Flow Problem
As the marketing manager, you have been tasked to consider expanding the detergent product line. Brand XYZ is a discount detergent product that expects to generate $50 million dollars in sales per year for the next ten years. To create product, the firm will have to spend an extra $40 million in property, plant and equipment. The company spent already $3 million on marketing and it expects that the new brand will eat into existing sales of another detergent. You estimate that this cannibalization is about $5 million per year. Costs are 50% of sales. Working capital is 30% of next year sales for all products of the firm. The tax rate is 40% and assume straight line depreciation. Assume that the appropriate discount rate is 11%. The expected life of the product and property, plant and equipment is 10 years. Assume no salvage value. Determine the NPV and IRR of the project.
An investor faces a combined (federal and provincial) tax rate of 42 percent, with provincial tax being 40 percent of federal tax.
Calculate or look up the cost of capital for the firm AT&T. Ideally you calculate this using the various inputs, but a good source of this information can be found at
Fiona invents a new deep-sea fishing net, which she names Great Catch. She also writes the operating manual to be included with each net. Fiona could obtain copyright protection for
Using the financial balance sheet as displayed in the text, provide an example of how purchasing an asset or issuing stocks or bonds could potentially impact earnings targets.
the first bank of ellicott city has issued perpetual preferred stock with a 100 par value. the bank pays a quarterly
Draw a flowchart showing the interface relationships among CAD, CAD, and CAS (or equivalent).
Calculate the discount rate consistent with a cap rate of 12 percent and a growth rate of 6 percent. Show how your answer would change if the cap rate dropped to 10 percent while the growth rate declined to 5 percent.
What are the independent variables in the equity options pricing model? What is the most likely delta for an at-the-money call?
You are planning to save for retirement over the next 30 years. To save for retirement you will invest $1,000 a month in a stock account in real dollars.
Develop an integer programming model to maximize the NPV in this situation. Solve the problem in part (a) using computer software. Which of the three projects would be undertaken if NPV is maximized? How much money would be used each year?
Name three working capital elements that may change as a result of expansion into a new product line. Indicate why this element of working capital will change.
The Boulder Inc., just paid a dividend of $2.15 per share on its stock. The dividends are expected to grow at a constant rate of 5% per year, indefinitely.
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