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SSC is considering another project: the introduction of a "weight loss" smoothie. The project would require a $3.2 million investment outlay today (t = 0). The after-tax cash flows would depend on whether the weight loss smoothie is well received by consumers. There is a 40% chance that demand will be good, in which case the project will produce after-tax cash flows of $2.3 million at the end of each of the next 3 years. There is a 60% chance that demand will be poor, in which case the after-tax cash flows will be $0.49 million for 3 years. The project is riskier than the firm's other projects, so it has a WACC of 11%. The firm will know if the project is successful after receiving the cash flows the first year, and after receiving the first year's cash flows it will have the option to abandon the project. If the firm decides to abandon the project the company will not receive any cash flows after t = 1, but it will be able to sell the assets related to the project for $2.5 million after taxes at t = 1. Assuming the company has an option to abandon the project, what is the expected NPV of the project today? Round your answer to 2 decimal places. Do not round your intermediate calculations. Use the values in "millions of dollars" to ascertain the answer.
Which of the following correctly ranks the after-tax component costs of capital from the least to the greatest in magnitude?
How much should you have saved in your retirement account to receive this income, if the interest is 9% per year
The XYZ Company just paid a dividend of D0 = $1.50 per share, and that dividend is expected to grow at a constant rate of 5.00% for the first 2 years and then 2% per year from year 3 till forever. The company's beta is 1.1, the expected market return..
Raphael Restaurant is considering the purchase of a $9,400 souffle maker. The maker has an economic life of 5 years and will be fully depreciated by the straight line method. The machine will produce 1,700 souffles per year, with each costing $2.50 t..
Wendy's boss wants to use straight-line depreciation for the new expansion project because he said it will give higher net income in earlier years and give him a larger bonus. The project will last 4 years and requires $900,000 of equipment. Which de..
Suppose that an investor buys 300 shares on margin at $40 per share. The initial margin is 50% and the maintenance margin is 30%. After one year, the investor sells the shares for $38 and closes the long position. Calculate the investor’s return for ..
proposal to sell your firm some new machinery to install in your vacant warehouse building on the property that has no alternative use
The Market Place is considering a new four-year expansion project that requires an initial fixed asset investment of $2.8 million. The fixed asset will be depreciated straight-line to zero over its four-year tax life, after which time it will have a ..
A municipal bond carries a coupon rate of 5.75% and is trading at par. What would be the equivalent taxable yield of this bond to a taxpayer in a 40% tax bracket?
Consider a firm with free cash flows to equity (FCFE) of $100 million, $160 million, and $90 million each year for years 1, 2, and 3, respectively. Assume that the first free cash flow to equity of $100 million is exactly one year away from today. Wh..
Suppose a company uses only debt and internal equity to finance its capital budget and uses CAPM to compute its cost of equity.
Johnny’s Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $43,000 and will be depreciated according to the 3-year MACRS schedule. It will be sold for scrap metal after 3 years for $10,750. What are the operating ca..
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