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The Market Place is considering a new four-year expansion project that requires an initial fixed asset investment of $2.8 million. The fixed asset will be depreciated straight-line to zero over its four-year tax life, after which time it will have a market value of $625,000. The project requires an initial investment in net working capital of $270,000, all of which will be recovered at the end of the project. The project is estimated to generate $2,550,000 in annual sales, with costs of $1,638,000. The tax rate is 34 percent and the required return for the project is 14 percent. What is the net present value?
Cyberco Corporation has 5 million shares of stock outstanding. Cyberco's after-tax profits are $15 million and the corporation's stock is selling at a price-earnings multiple of 10, for a stock price of $30 per share. Cyberco management issues a 25% ..
In what way does a minimum risk-based capital ratio requirement battle the moral hazard problem in banking? How have banks tried to get around the provisions of the Glass-Steagall Act? How has the government responded?
Consider four uncorrelated assets A,B,C,D with returns 1%, 3%, 5%, 8% and risks 0%, 10%, 20%, 30%. What is the minimum-risk portfolio comprised of assets B,C,D only? What is the tangency portfolio comprised assets B,C,D only? What is the risk? You ar..
Which of the following cash flows should be included as incremental costs when evaluating capital projects?
The coupon rate on an issue of debt is 8%. The yield to maturity on this issue is 10%. The corporate tax rate is 31%. What would be the approximate after-tax cost of debt for a new issue of bonds?
You are negotiating to make a 7-year loan of $26,000.00 to Breck In. To repay you, Breck will pay $2,500 at the end of Year 1, $5,000 at the end of Year 2, and $7,500 at the end of Year 3, plus a fixed but currently unspecified cash flow, X, at the e..
The clinic incurred $4,500,000 in general expenses and paid cash for them. The hospital received $1,000,000 in cash from a donor who temporarily restricted its use.
Hedging in the futures markets can reduce all risk if:
Calculate the budgeted sales for the 4 years and company has taken a loan for financing the new machine for apple juice production, this has been added to long term debt.
Analysis of past monthly movements in IBM's stock price produces the following estimates: α = 2.5% and β = 1.6. If the market index subsequently rises by 12% in one month and IBM's stock price increases by 20%, what is the abnormal change in IBM's st..
Martin Software has 8.2 percent coupon bonds on the market with 21 years to maturity. The bonds make semiannual payments and currently sell for 106.9 percent of par. What is the current yield on the bonds? What is the effective annual yield?
Motor Homes Inc. (MHI) is presently enjoying abnormally high growth because of a surge in the demand for motor homes. The company expects free cash flow to grow at a rate of 20% for the next 4 years, after which there will be no growth (g = 0) in FCF..
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