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Aria Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year Unit Sales 1 86,000 2 99,000 3 113,000 4 108,000 5 89,000 Production of the implants will require $1,650,000 in net working capital to start and additional net working capital investments each year equal to 20 percent of the projected sales increase for the following year. Total fixed costs are $1,550,000 per year, variable production costs are $290 per unit, and the units are priced at $405 each. The equipment needed to begin production has an installed cost of $21,500,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as seven-year MACRS property. In five years, this equipment can be sold for about 25 percent of its acquisition cost. AAI is in the 34 percent marginal tax bracket and has a required return on all its projects of 19 percent. What is the NPV? What is the IRR?
Which one of the following statements related to unexpected returns is correct? Unexpected returns are relatively predictable in the short-term Unexpected returns can be either positive or negative in the short term but tend to be zero over the long-..
You have just arranged for a $1,760,000 mortgage to finance the purchase of a large tract of land. The mortgage has an APR of 7.6 percent, and it calls for monthly payments over the next 25 years. However, the loan has an eight-year balloon payment, ..
An option dealer needs to finance the purchase of a security and holds an inventory of U.S. Treasury bills. Explain how the dealer can use the repo market for financing the security purchase?
Your neighbor is buying a new recreational vehicle (RV). He has the following options to finance the RV: Buy under a "no payments for three years" program by agreeing to pay $80,000 three years from today (in time 3). If the interest rate is 6% annu..
Calculate how much of these taxes are deductible. Calculate the Goulds total income and adjusted gross income for the year.
Think of all the costs, the TVM and estimate an annual return (IRR) for this type of investment. Think: MAP the cash flows.
What impact will this utilization of this debt have on the value of the company and whats going to be the company's EPS after the recapitalization?
Exchange-traded options are characterized by________________, while the over-the-counter options are structured
You gather the following data: ABC has a CAPM beta of 0.75 and an annual standard deviation of returns equal to 70%. The S&P 500 has an annual standard deviation of returns equal to 17%, and we can use the S&P 500 as a proxy for the market portfolio ..
Which of the following bonds generally has the lowest interest rate? The explicit cost incurred in making an exchange is called:
A project requires an upfront investment of $20,000, to be paid today. It will generate annual cash flows for 5 years that grow at 10% per year, after which the project will end with no residual value. Year 1 cash flows will be $5,000. The appropriat..
In the options market, call options expire unexercised over 80% of the time." Thus the option holders frequently lose all their investment. Does this imply that the options market is not a fair game?
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