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You have been hired as a consultant for Brilliant Paint Company, Inc. (BPC), manufacturers of fine industrial paint. The market for industrial paint is growing rapidly. The company bought some land three years ago for $1.35 million in anticipation of using it as a toxic paint waste dump site but has recently hired another company to handle all toxic materials. Based on a recent appraisal, the company believes it could sell the land for $1.45 million on an after-tax basis, however, if it waits for 6 years, the land could be sold for $1.55 million after taxes. The company also hired a marketing firm to analyze the paint market, at a cost of $120,000. An excerpt of the marketing report is as follows: The paint industry will have a rapid expansion in the next five years. With the brand name recognition that BPC brings to bear, we feel that the company will be able to sell 3,000 units in the first year of operation and will increase by 25% in the second. The unite growth will decrease to 20% in the third year and will continue to decrease linearly to 5% every year until the end of the project. Capitalizing on the name recognition of BPC, we feel that a premium price of $600 can be charged in the first year but due to competition the company needs to keep the price for at least three years. However, the company could increase the price to $625 in year three and maintain it until the end of project life. BPC believes that fixed costs for the project will be $500,000 per year, and variable costs are 20 percent of sales. The equipment necessary for production will cost $3 million and will be depreciated according to a six-year MACRS schedule. At the end of the project, the equipment can be scrapped for $375,000. Net working capital of $150,000 will be required immediately but needs to increase it by %5 per year as the sales increases. BPC has a 35 percent tax rate, and the required return on the project is 13 percent. What is the NPV of the project?
The index model has been estimated for stocks A and B with the following results: hat is the covariance between stocks A and B?
What is the equivalent tax free yield of a taxable 8% bond of the tax rate is 30%?
What would the APR be if it is a negative amortizing loan and the loan balance will be $150,000 at the end of year 20?
When evaluating a capital budgeting project, the change in net working capital must be considered as part of: a. the initial investment b. the incremental operating cash inflows c.th operating cash inflows d. the operating case outflows
Ridgefield Enterprises has total assets of $300 million and EBIT of $45 million. The company currently has no debt in its capital structure. The company is contemplating a recapitalization where it will issue debt at 10 percent and use the proceeds t..
The market uses a dividend valuation model, show how the market value of the shares has been affected by the Board's decision.
Suppose you purchased 1,600 shares of Pan Am Airlines at the beginning of the year for ?$17.25. By the end of the? year, the stock price had appreciated to ?$18.63. At the end of the? year, Pan Am paid a dividend of ?$0.64 per share. Calculate your c..
You are considering two savings options that each provide a rate of return of 4.65 percent. The first option requires annual savings of $2,000, $2,500, and $3,000 over the next three years, respectively, with the first deposit due one year from today..
You’re trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $13 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected n..
Present Value of an Annuity Due If the present value of an ordinary, 6-year annuity is $8,500 and interest rates are 9.5 percent, what’s the present value of the same annuity due?
One of your clients, a wealthy Houstonian, asks you to evaluate the following investment in a mining venture in Mexico. The investment (outlay) is 2 million dollars. Assuming the International Fisher Effect holds, Find the NPV of the project (in doll..
Why might a company’s board of directors decide to lease office space even though it would be more economical to purchase the property and finance it with a long-term loan?
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