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Star Industries owns and operates landfills for several municipalities throughout the U.S. Midwest. Star typically contracts with the municipality to provide landfill services for a period of 20 years. The firm then constructs a lined landfill (required by federal law) that has capacity for five years. The $9.6 million expenditure required to construct the new landfill results in negative cash flows at the end of Years 0, 5, 10, and 15. This change in sign on the stream of cash flows over the 20-year con-tract period introduces the potential for multiple IRRs, so Stars management has decided to use the MIRR to evaluate new landfill investment contracts. The annual cash inflows to Star begin in Year 1 and extend through Year 20 and are estimated to equal $3.5 million (this does not reflect the cost of constructing the landfills every five years). Star uses a 10.2 percent discount rate to evaluate its new projects, so it plans to discount all the construction costs every five years back to Year 0 using this rate before calculating the MIRR.
a. What are the projects NPV, IRR, and MIRR?
b. Is this a good investment opportunity for Star Industries? Why or why not?
You are examining balance sheets for 2012 and 2013 and you observe that a company's net fixed assets increased from $45 million to $50 million. The income staement states that depreciation was $2 million. If it's the case that the company purchased a..
A speculator buys a call option for $3, with an exercise price of $50. The stock is currently priced at $49, and rises to $55 on the expiration date. The speculator will exercise the option on the expiration date (if it is feasible to do so). What is..
The Jackson–Timberlake Wardrobe Co. just paid a dividend of $1.10 per share on its stock. The dividends are expected to grow at a constant rate of 5 percent per year indefinitely. Investors require a return of 11 percent on the company's stock. What ..
The net cash flow from the sale of an asset will exceed the asset's sale price when a firm has positive taxable income and the asset's book value exceeds its market value.
Local communities, states, and even countries often compete to get large firms to locate in their area. Using the internet or other resources, describe at least one example of a major firm located in a new city, state, or country and list the benefit..
Calculating OCF. Hammett, Inc., has sales of $34,630, costs of $10,340, depreciation expense of $2,520, and interest expense of $1,750. If the tax rate is 35 percent, what is the operating cash flow, or OCF?
How a firm determine its optimal capital structure. Explain how they do it. Why might optimal capital structure differ across industries? Explain.
You receive a credit card application from Shady Banks Savings and Loan offering an introductory rate of 0.6 percent per year, compounded monthly for the first six months, increasing thereafter to 17.5 percent compounded monthly. Assume you transfer ..
Create a portfolio of analytical reference materials including the financial reports for at least five years. This is your analytical permanent file for the selected company.
A building 190 feet tall casts a 30-foot long shadow. If a person stands at the end of the shadow and looks up to the top of the building, what is the angle of the person's eyes to the top of the building (to the nearest hundredth of a degree)? (Assu..
In the 1960s energy consumption increased by 10% each year, but by the year 2000 the growth rate was at 1% per year. Give two reasons for the decline in the US energy consumption growth rate.
For the given cash flows below, assume the cash flow is the same in the next 2 years. Compute the NPV for each project, and compute the incremental IRR. Compare and explain why NPV always gives the correct decision. In what ways can the IRR make you ..
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