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You have been hired as a financial consultant by PJ corporation. PJ is considering investing in a new machine to produce dog biscuits. PJ has provided you with the following information: Full price of machine is $100,000. The machine will not require any modification or increase in net working capital. PJ has a 30% marginal tax rate. The machine falls into the MACRS 3-year class. PJ will use the machine for 4 years and then plans to sell it for $15,000 at the end of year 4. The machine is expected to increase earnings before depreciation by $35,000 a year for the life of the machine. PJ has a WACC of 12%. You have been hired by PJ to create a spreadsheet that can be used by the PJ managers to assist them in making the investment decision and will calculate the NPV of the project. The spreadsheet should be set up to allow for sensitivity analysis to be conducted. The cells to input the full price, tax rate, increased earnings, sale price in year 4, and WACC should be easily identified and allow the PJ managers to change their values. Your name should be on the sheet and it should print out as 1 page. Additionally, you are to create a 2-page executive summary with your decision recommendation in MS-Word. The executive summary should explain in words what the spreadsheet is showing in regards to your recommendation. You should cut and paste as an image a copy of your spreadsheet into your MS-Word document. Do not work with anyone other than the instructor in formulating or checking your answers.
A Treasury bond that matures in 8 years has a yield of 3.24%. A 8-year corporate bond has a yield of 7.8%. Assume that the liquidity premium on the corporate bond is 0.36%. What is the default risk premium on the corporate bond?
The lease would be for four years and requires a $7,500 payment. The company also has an initial cost of $2,500 for transporting the car. At the end of the lease, the van will return to the leasing company. The cost of capital is 8%. Should the compa..
Complete the following statement based on your calculations and understanding of semiannual coupon bonds:
AT&T is a mature, established company paying dividends that have consistently increased each year. Its annual dividend is currently $1.64. Find the required return according to CAPM. Do not round. Find the value of AT&T according to the constant gro..
What is the current beta on MME's common stock? What would MME's beta be if the company had no debt in its capital structure?
The yield of strawberry plants depends on the amount of fertilizer fed to the plants. Agricultural research shows that an acre of strawberry plants will yield 500 pounds of strawberries when 50 cubic feet of fertilizer are applied. If 70 cubic of fee..
An organization-wide reliance on innovation and entrepreneurship within established firms is called
Music City, Inc., has no debt outstanding and a total market value of $295,000. Earnings before interest and taxes, EBIT, are projected to be $23,000 if economic conditions are normal. Calculate earnings per share, EPS, under each of the three econom..
Complete the calculation, including formula -Assume you expect materials costs to increase by 5.0 % of unit price,
If a firm takes actions that reduce its days sales outstanding (DSO), then, other things held constant, this will lengthen its cash conversion cycle (CCC). Three factors affecting a firm's business risk are the variability of demand for the firm's pr..
You have $252,000 to invest in a stock portfolio. Your choices are Stock H, with an expected return of 14.2 percent, and Stock L, with an expected return of 10.3 percent. If your goal is to create a portfolio with an expected return of 12.1 percent, ..
You own a stock portfolio invested 20 percent in Stock Q, 20 percent in Stock R, 20 percent in Stock S, and 40 percent in Stock T. The betas for these four stocks are 1.53, 1.38, 0.9, and 1.01, respectively. What is the portfolio beta?
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