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Home Guardian has recently completed a $200,000, two-year study on its new pest control device. It can go into production for an initial investment in equipment of $5 million. The equipment will be depreciated straight line over the useful life of 5 years to a value of zero. The fully depreciated equipment is expected to sell for $1,200,000 at the end of its useful life. The project also requires investment in land value of $300,000 which is expected to have a realisable value of $500,000 at the end of the project. Investment of $400,000 in current assets will be recovered at the termination of the project. The marketing department has estimated that 200,000 units of its new device could be sold annually over the next five years at a price of $10 each. Fixed costs of $500,000 per annum will be incurred.
The firm is an ongoing profitable business and pays taxes at a 30% rate in the year of income. All capital gains will also be taxed at a rate of 30%. The company uses a 12% discount rate on the new project. Using the NPV approach, advise the firm whether the project should be undertaken.
You are looking at a one-year loan of $15,500. The interest rate is quoted as 8.9 percent plus four points. What rate would you actually be paying here?
Calculate the return on equity (ROE) under each of the three economic scenarios assuming the firm goes through with the recapitalization.
What will be an investor's taxable income from the bond over the coming year? Calculate the constant yield price.
Sweet Treats common stock is currently priced at $19.74 a share. What is this firm's cost of equity?
Find the yields and the durations of the two bonds
How much should be invested in the existing company’s equity? How much should be lent or borrowed?
Which of the following statements best describes a firm's financial risk?
Mike is searching for a stock to include in his current stock portfolio. He is interested in Hi-Tech, Inc.; he has been impressed with the company’s computer products and believes that Hi-Tech is an innovative market player. However, Mike realizes th..
how much would you be willing to pay if this were a 15-year, annual payment, ordinary annuity instead of a perpetuity?
The Collins Group, a leading producer of custom automobile accessories, has hired you to estimate the firm's weighted average cost of capital. What is the best estimate of the after-tax cost of debt? Based on the CAPM, what is the firm's cost of comm..
Calculating Additions to NWC. What was the company’s 2015 change in net working capital, or NWC?
In the spring of 2015, Jemison Electric was considering an investment in a new distribution center. Assuming the firm faces a 30% tax rate, calculate the project’s annual project free cash flows (FCFs) for each of the next five years where the salvag..
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