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You and your lifelong friend are partners together in the promotional materials business. That is, when marketing firms and their clients begin advertising or public relations campaigns, they come to your company to obtain the materials and products that would support the ad campaign. Examples of the materials and products you supply are printed posters, signs, T-shirts with printed logos, key chains, and other such items. You supply these items by procuring them from other sources or in some cases you manufacture them using various equipment in a warehouse you use near the center of the city. Your company’s name is WePROMOTE. You and your business partner are planning the next major project for your company. The project is a significant step in the growth of your firm in that the project will generate cash inflows into the firm for many years into the future. However, there will be a large investment of funds required by the firm to launch the project. The planning is in its preliminary stages where the numbers and other data are gross estimates. Despite the “fuzzy numbers”, you and your partner still need to decide whether the project will be worth pursuing. The following is some of the estimated data you have: The cost to install the required equipment will be $75,000 and this cost is incurred prior to any cash is received by the project. The expected cash inflows are the most variable of the estimates. Your partner is convinced that the firm will receive $15,000 annually for 7 years. You have your doubts. You think it is more reasonable that there will be cash inflows of $14,000 in years 1-2, then inflows of $15,000 from years 3-4, and then inflows of$17,000 for years 5-7. You both agree that after 7 years, the equipment will stop working and can be sold for its parts for about $5,000. Although you are hesitant to assume a 6% discount rate on this project (not much left for the firm after paying the interest on the loan) your partner is confident that this project will lead to other deals in the future that will bring in much more profit. You trust your partner’s instincts and agree to start analyzing the feasibility of the project. The first step is to perform net present value (NPV) calculations for the project using your partner’s estimates and then using your estimates. Requirements of the paper: Perform the two NPV calculations and provide a narrative of how you calculated both computations and why. Then provide a summary conclusion on whether you should continue to pursue this business opportunity. Finally, assuming your partner remains unconvinced of your conclusion, present relevant points of your analysis that you believe are compelling and persuasive in supporting your position.
How much of this total value represents the contributed principal, and how much is interest?
Ninja Co. issued 12-year bonds a year ago at a coupon rate of 8.4 percent. The bonds make semi-annual payments. If the YTM on these bonds is 6.7 percent, what is the current bond price?
Calculating Present Values [LO1] An investment will pay you $43,000 in 10 years. If the appropriate discount rate is 7 percent compounded daily, what is the present value?
The great, great grandparents of one of your classmates sold their factory to the government 104 years ago for $150,000. If these proceeds had been invested at 6%, how much would this legacy be worth today? Assume annual compounding.
What is the major risk of a government being reliant on short term financing?
After determining the expected return on its stock, XYZ ventures decides to sell the entire corporation with expected earnings estimated to be $8,000,000. With 200,000 shares outstanding and preferred equity at $4,500,000. Determine the liquidation v..
When valuing a stock using the constant-growth model, DI represents the:
A 9% bond with a 1,000 par values and coupons payable semiannually is redeemable at maturity for 1,100. At a purchase price P, the bond yields a nominal interest rate at 8%, compounded semiannually, and a present value of the redemption amount is 190..
A stock has had returns of −18.8 percent, 28.8 percent, 21.6 percent, −9.9 percent, 34.6 percent, and 26.8 percent over the last six years. What are the arithmetic and geometric returns for the stock?
The lender also charges a front-end loan origination fee on this loan of $100,000.- Compute the effective cost of this loan.
Explain the impact on the implied repo rate of changing from the bid to the offer future price of the longer-date future contracts.
Calculate the yield to maturity for each bond. Which bond offers the higher expected compound rate of return?
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