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Och, Inc., is considering a project that will result in initial aftertax cash savings of $1.77 million at the end of the first year, and these savings will grow at a rate of 1 percent per year indefinitely. The company has a target debt–equity ratio of .75, a cost of equity of 11.7 percent, and an aftertax cost of debt of 4.5 percent. The cost-saving proposal is somewhat riskier than the usual projects the firm undertakes; management uses the subjective approach and applies an adjustment factor of +2 percent to the cost of capital for such risky projects.
What is the maximum initial cost the company would be willing to pay for the project? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
You are the CEO of a company of your choosing and your firm has begun its 2016 financial planning and forecasting. What are the key financial statements that you want to include in this process and why? What key questions need to be answered in this ..
Hassle-free Web is bidding to provide web hosting services for Hotel Lisbon. Hotel Lisbon pays its current provider $10,500 per year for hosting its web page, handling transactions, etc. If Hassle Free's cost of capital is 10.4%, can it bid less than..
A 4.85 percent coupon municipal bond has 22 years left to maturity and has a price quote of 103.70. The bond can be called in eight years. The call premium is one year of coupon payments. Compute the bond’s current yield. Compute the yield to call.
Piliot plus pens is deciding when to replace its old machine. The machine's current salvage value is $2.34 million. Its current book value is $1.43 million. If not sold, the old machine will require maintenance costs of $975,000 at the end of the yea..
Daily settlement (marked the market) of the futures contract
Portfolio Returns and Deviations Consider the following information about three stocks: Rate of Return if State Occurs State of Probability of Economy State of Economy Stock A Stock B Stock C Boom .30 .20 .25 .60 Normal .45 .15 .11 .05 Bust .25 .01 −..
Firm X is considering a project and its analysts have projected the following outcomes and their probabilities. 30% chance of Net Income being $4,600; 45% chance of Net Income being $7,800 and 25% chance of Net Income being $13,500. What is the expec..
Unique Jewelers has the following equity account balances: common stock of $40,000 with a $1 par value, capital surplus of $260,000, and retained earnings of $411,000. The stock has a market value of $52 a share. Assume the firm does a 3-for-2 stock ..
In an economic recession, a company could NOT eliminate ________.
You inherit a portfolio that is 50% invested in the SP500 and 50% in US Treasuries. The total risk of the portfolio is too high in your opinion. What can you do to reduce the portfolio total risk?
The market capitalization rate for Admiral Motors Company is 8%. Its expected ROE is 14% and its expected EPS is $7. If the firm’s plowback ratio is 40%. a. Calculate the growth rate. (Input your answer as a nearest whole percent.) Growth rate % b. w..
Risk-averse investors reject investments that are fair games. Risk-neutral investors judge risky investments only by the expected returns. Risk-averse investors judge investments only by their riskiness. Risk-loving investors will not engage in fair ..
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