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National foods is considering producing a new gelatin dessert, Tasty, of which management believes consumers will by $15,000 units each year for 3 years. The price of tasty will be $2.00 per unit at t=0 and increases at 7% per year. New equipment to produce tasty will cost $45,000 with no salvage value, while land will be bought at t=0 for $100,000 and sold at t=3 for $100,000. Nation expects production cost to be $12,000 each year. In addition, overheads and sales expenditures are expected to be $5,000 in the first year and then are expect to increase at 5% per year. The firm faces a 40% income tax rate and uses straight-line deprecation. The firm’s stock price is $25 per share with 16 million shares outstanding. Its beta equity is 1.18. It also has 220 million debt outstanding. The only publicly traded bond it has is a two-year, $10,000 bond with semi-annual coupons of 5.6% and a price of $9779. The risk free rate is 3% and market-risk premium is 6%. All cash flows occur at year’s end. The firm has other profitable ongoing operations
A. Give a table of cash flows with one column for each years end
B. What is the firms weighted average cost of capital
C. What is the NPV of the project calculated using the weighted average cost of capital.
A company has 1,000 shareholders who own a total of one million shares of its common stock currently selling at $7 per share. The company earned $11,000,000 after taxes. The annual dividend is $.80 per share. The firm has assets of $137,000,000 and l..
question 1nbsp allen air lines must liquidate some equipment that is being replaced. the equipment originally cost 12
10 years ago, Weed Go Inc. earned $0.53 per share. Its earnings this year were $4.58. What was the growth rate in earnings per share (EPS) over the 10-year period? State your answer as a percentage to two decimal places (e.g. 16.38%). The % sign is n..
In using horizontal analysis, comparative reports are:
Yang Corp. is growing quickly. Dividends are expected to grow at a rate of 29 percent for the next three years, with the growth rate falling off to a constant 7.8 percent thereafter. If the required return is 15 percent and the company just paid a $3..
How is it possible to embed political risk insurance in a capital budgeting analysis?
Jenny Jenks has researched the financial pros and cons of entering into a 1-year MBA program at her state university. The tuition and books for the master’s program will have an up-front cost of $50,000. If she enrolls in an MBA program, Jenny will q..
The project requires and initial outlay of $1,000,000. It is expected to generate net cash in-flows of $250,000 for the next five years. At the end of five years, Timmy will retire and the equipment will be sold for $500,000 (terminal value). The zoo..
The Knight and Day Café is contemplating making a $125,000 investment that has a 45% chance of producing a 8% return, a 25% chance of producing an 11% return, a 15% chance of producing a 15% return, a 10% chance of producing a 5% return, and a 5 % ch..
The text identifies three methods for estimating the cost of common stock from reinvested earnings (not newly issued stock): CAPM method, DCF method, and Bond-yield-plus-risk-premium method. Since we cannot be sure that the estimate obtained with any..
Assume that the corporate tax rate is 34% and the personal tax rate is 30%. The founders of a newly formed business are debating between setting up the firm as a partnership versus a corporation. What is the difference in the percentage of the firm's..
If a firm wishes to retain the same return on equity when its net profit margin and total asset turnover has declined, it must
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