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CVC supplies power to the city of Cali in Columbia, South America. They are planning to build a dam to meet the city's burgeoning power needs. The dam will cost $8 million up front to build and will begin producing electricity the following year. The production of electricity is valued at $1,000,000/year and the dam will produce a constant value for 14 years at which time it must be closed due to siltation.
A. If the real interest rate is 8%, what is the present value of the project? At 5%?
B. CVC is contemplating subsidizing large scale pine plantations by private landowners who own the surrounding denuded hillsides. Columbian hydrologists have estimated that an initial $2.5 million dollar subsidy at the time of building the dam will increase the longevity of the project 12 years. What is the net present value of this supplemental investment at 5% and 8%? Should the planting subsidy be undertaken?
Our company is considering a project that will provide the following after tax cash flows to the firm: CF1 90,000 CF2 125,000 CF3 175,000 CF4 200,000 CF5 190,000 CF6 – 9 165,000 CF10 145,000 If we have a required return of 14% for this project, what ..
The local home-improvement store has a washing machine sale for $1401 with the payment due in three years from today the store is willing to discount the price at an annual rate of 7% compounded annually if you pay today, what is the amount if you pa..
When reviewing the financial statements of a company, there are many different ratios to choose from. Choose a ratio that looks at liquidity, solvency and profitability and discuss its importance.
The operating cost of a new machine is $500 for the first year. Starting the second year, the operating cost increases by $200 per year for the next 10 years. Calculate the equivalent annual operating cost of the machine. What will be the present and..
Communication (or the lack of it) is definitely one area that can lead to conflict within the project. How might the elements of the contract be structured to help relieve communication problems?
Western Printing Co. has an opportunity to purchase a $2 million printing machine. The machine has an economic life of five years and will be worthless after that time. It will generate net income of $100,000 one year from today and the income stream..
Explain why you might expect to observe a negative correlation between financial leverage and operating leverage.
The World Income Appreciation Fund has current assets with a market value of $11.7 billion, 350 million shares outstanding, and a current market price quotation of $35.08. Calculate the front-end load.
In the past year, TVG had revenues of $2.91 million, cost of goods sold of $2.41 million, and depreciation expense of $146,570. The firm has a single issue of debt outstanding with book value of $1.19 million on which it pays an interest rate of 9%. ..
Disregarding the possibility of default, if you decide to sell the bond just before its maturity date, you will have incurred a capital loss.
The shares of the Dyer Drilling Co. sell for $60. The firm has a P/E ratio of 15. What is the firm’s dividend yield?
John sells his house to Mabel by giving a deed to Mabel. In the purchase agreement John was to buy a title insurance policy protecting Mabel's title. What kind of title policy did John buy Mabel? Coral sells her house to Sky using a land sale contrac..
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