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Maker of pop tarts recent introduces a new flavor, gone nutty. Although the new product will reap a higher wholesale price ($1.20 per box vs $1.00 original flavor) it also comes with higher variable costs ($0.55 for the new flavor, $0.30 for the original).
Assume the company expects to sell 5 million packages of the new flavor in the first year after the introduction but expects 80% of those sales to come from buyers who would normally purchase existing poptarts. Assuming the sales of regular pop tarts are normally 300 million packages per year and the company will inccur and increase in fixed costs of $500,000 during the first year of the new launch, will the new product be profitable for the company? Show calculations.
We are evaluating a project that costs $1,675,000, has a six-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 91,000 units per year. Price per unit is $35.95, ..
Companies a and b have been offered the following rates per annum on a $100 million 5 year loan. Company A requires a floating rate loan; company b requires a fixed rate loan. design a swap that will appear equally attractive to both companies.
The total book value of the firm’s equity is $16 million; book value per share is $32. The stock sells for a price of $35 per share, and the cost of equity is 13%. The firm’s bonds have a face value of $4 million and sell at a price of 140% of face v..
How would you respond to your CFO if she instructed you to use the IRR technique to make capital budgeting decisions on projects with cash flow streams that alternate between inflows and outflows?
You have contacted a number of car dealerships to determine the best interest rate on a new automobile loan. A Ford dealership has quoted you a 5-year, 10% loan in the amount of $35,000 that will require monthly payments. What is the monthly loan pay..
You are offered two investments for the firm's "spare cash" ($8000). Which option will give you a better return on and of investment (two ROIs)? Option 1- pays out at 16% simple interest for five years Option 2- pays out at 11% compound interest fo..
Reversing Rapids Co. purchases an asset for $136,588. This asset qualifies as a five-year recovery asset under MACRS. The five-year expense percentages for years 1, 2, 3, and 4 are 20.00%, 32.00%, 19.20%, and 11.52% respectively. Reversing Rapids has..
Several factors affect a firm’s need for external funds. Evaluate the effect of each following factor and place a check next to each factor that is likely to increase a firm’s need for external capital—that is, its AFN
Alejandra wants to buy a new Ford F-150. She sees the following ad: "0% APR financing for 66 months OR Up to $8,000 in total savings." She has negotiated a sales price of $35,000 and she has a $5,000 down payment. She is eligible for the full $8,000 ..
An investor is considering purchasing a $1,000 Treasury bond with a 3- year maturity, a 6% coupon and an 8 % required rate of return. The bond pays interest semi annually. What is the bonds duration? What is the bonds modified duration? What is the b..
The current price of Zebar is $32.00 and the current dividend is $0.60. What is an investor’s required rate of return on Zebar if dividends are expected to grow perpetually at a compound annual rate of 8%?
Why doesn't an increase in the price level shift the demand curve for real money balances to the right? Don't firms and households demand more money as prices rise?
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