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Och, Inc., is considering a project that will result in initial aftertax cash savings of $1.76 million at the end of the first year, and these savings will grow at a rate of 3 percent per year indefinitely. The firm has a target debt–equity ratio of .85, a cost of equity of 11.6 percent, and an aftertax cost of debt of 4.4 percent. The cost-saving proposal is somewhat riskier than the usual projects the firm undertakes; management uses the subjective approach and applies an adjustment factor of +1 per cent to the cost of capital for such risky projects.
What is the maximum initial cost of company would be willing to pay for the project? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.)
A call option with X = $51 on a stock currently priced at S = $54 is selling for $8. Using a volatility estimate of σ = 0.34, you find that N(d1) = 0.7311 and N(d2) = 0.6722. The risk-free interest rate is zero. Is the implied volatility based on the..
Look at Vermont heritage, sales revenue, EBIT and bet income over three year period, would you classified as a growing diminishing or stable company?
to develop a schedule for a project we will use the concept of a project network which shows work activities taken from
Dave Co. owns aging machines and is considering buying new ones. Dave Co. is considering replacing their older machines to take advantage of the higher potential day rates for their contracts over the next five years. Assume that Dave Co. faces a 40%..
Mars, Inc. is considering the purchase of a new machine which will reduce manufacturing costs by $5,000 annually. The company will depreciate the cost of the new machine using the straight line method over the project life and it expects to sell the ..
You’ve observed the following returns on Hacker Corporation’s stock over the past five years: -25%, 36%, 9%, 11%, and 17%. Suppose the current T-bill rate is 0.15%. What is the risk premium of owing Hacker Corporation s stock. What range of returns w..
Shadow Corp. has no debt but can borrow at 8.0 percent. The firm’s WACC is currently 9.8 percent, and the tax rate is 35 percent. What is Shadow’s cost of equity? If the firm converts to 15 percent debt, what will the company's WACC be? If the firm c..
Porter bonds were issued five years ago with a 20 year maturity. The bond has a call provision that allows them to pay off the debt anytime after ten years by compensating bond holders with an extra year’s interest at the coupon rate. The bond’s coup..
q1. veezee vz issues a 2-year floating rate bond in the amount of 100m on which it pays libor6 - 0.5 semi-annually.
You’re trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $12.9 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected..
This Learning Activity involves preparing a preliminary financial analysis of one of the largest firms in the world, McDonalds Corporation. Why is there an increasing trend or a decreasing trend? Is this trend favorable or unfavorable? Why? What migh..
Decker Tires’ free cash flow was just FCF0 = $1.32. Analysts expect the company's free cash flow to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The WACC for this company 9.00%. Decker has $4 million..
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