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"Since East Coast Yachts is producing at full capacity, Larissa has decided to have Dan examine the feasibility of a new manufacturing plant. This expansion would represent a major capital outlay for the company. A preliminary analysis of the project has been conducted at a cost of $1.2million. This analysis determined that the new plant will require an immediate outlay of $40million and an additional outlay of $20milllion in one year. The company has received a special tax dispensation that will allow the building and equipment to be depreciated on a 20-year MACRS schedule. Because of the time necessary to build the new plant, no sales will be possible for the next year. Two years from now, the company will have partial-year sales of $10million. Sales in the following four years will be $26million, $33million, $38million, and $40million. Because the new plant will be more efficient than East Coast Yachts's current manufacturing facilities, variable costs are expected to be 60 percent of sales, and fixed costs will be $2million per year. The new plant will also require net working capital amounting to 8 percent of sales. Dan realizes that sales from the new plant will continue into the indefinite future. Because of this, he believes the cash flow after Year 5 will continue to grow at 4 percent indefinitely. The company's tax rate is 40 percent and the required return is 11 percent. Larissa would like Dan to analyze the financial viability of the new plant and calculate the profitability index, NPV, and IRR. Also, Larissa has instructed Dan to disregard the value of the land that the new plant will require. East Coast Yachts already owns it, and, as a practical matter, it will simply go unused indefinitely. She has asked Dan to discuss this issue in his report
The projected net income from the project is $1,900, $1,800, $2,200, and $4,600 a year for the next four years, respectively. What is the average accounting return?
You find a certain stock that had returns of 16 percent, -9%, 23%, and 24% for four of the last five years. The average return of the stock over this period was 14.40 percent.
A member of your board has asked if you have considered competitive bids for the distribution of your securities compared to a negotiated contract with a particular firm. What factors are involved in this decision?
Suppose you are an analyst studying Beranek Technologies, which was founded ten years ago. It has been profitable for the last five years, but it has needed all of its earnings to support growth and thus has never paid a dividend.
Discuss some benefits and pitfalls of global investing.
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Steinberg Corporation and Dietrich Corporation are identical firms except that Dietrich is more levered. Both companies will remain in business for one more year. Supposing there are no costs of bankruptcy, what is the market value of each firm's d..
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Sale of Machinery to Subsidiary Corporation as well as Calculation of Income in Acquired Company
If the ratio of currency in circulation to checkable deposits were to drop to 13 percent while the other ratios remained the same, what would be the impact on the money supply?
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