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KADS, Inc., has spent $470,000 on research to develop a new computer game. The firm is planning to spend $270,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $57,000. The machine has an expected life of three years, a $82,000 estimated resale value, and falls under the MACRS 7-year class life. Revenue from the new game is expected to be $670,000 per year, with costs of $320,000 per year. The firm has a tax rate of 40 percent, an opportunity cost of capital of 11 percent, and it expects net working capital to increase by $135,000 at the beginning of the project. What will the cash flows for this project be? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.)
What are the step by step procedures to solving this problem?
You enter into a five-to-eight-month forward rate agreement with a firm. You agree to lend the firm a 3-month loan of $5 million starting 5 months from now, with a quarterly compounded forward interest rate of 2.5% per annum. What is the implied forw..
An analyst gathered the following year-end price level data for an economy: What is the economy’s annual inflation rate for 2012? What is the average compounded inflation rate for 2007–2012?
Consider a bond paying a coupon rate of 8.75% per year semiannually when the market interest rate is only 3.5% per half-year. The bond has three years until maturity. Find the bond's price today and six months from now after the next coupon is paid. ..
Suppose the following bond quote for the Beta Company appears in the financial page of today's newspaper. Assume the bond has a face value of $1,000 and the current date is April 15, 2009. What is the yield to maturity on this bond if it is compounde..
A bond was issued 2 years ago. It's original maturity was 20 years. The coupon rate is 4% and the current YTM is 6%. Compute its intrinsic value.
PHP inc. is considering purchasing a security system costing $642,000. The equipment will be depreciated as 5-year property under MACRS, which provides for depreciation allowance percentages of 20%, 32%, 19.20%, 11.52%, 11.52%, and 5.76% respectively..
Common stockholders have a residual claim to income. Bondholders may force a corporation into bankruptcy for failure to make interest payments. Common stockholders are legally entitled to some dividend.
What is a short squeeze? When do short sellers get squeezed? What do short sellers do when they get squeezed? If all short sellers behave the same, does that make things better or worse for short sellers? Why?
Explain the following statement: The standalone risk of an individual corporate project may be quite high, but viewed in the context of its effect on stockholders’ risk, the project’s true risk may be much lower.
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.
Gigawage Corp. is considering issuing a new 30-year debt isse that would pay an annual coupon of $85. Each bond in the issue would carry a $1,000 par value and would be expected to be sold for a price equal to its par value. After-tax cost of debt wi..
Assume you are a banker and want a 4% real rate of return on your loans. if you expect that the inflation rate will average about 6% over the next thirty years, what rate should you charge your customers for a thirty year fixed rate mortgage? How wou..
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