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TexMex Food Company is considering a new salsa whose data are shown below. The equipment to be used would be depreciated by the straight-line method over its 3-year life and would have a zero salvage value, and no change in net operating working capital would be required. Revenues and other operating costs are expected to be constant over the project’s 3-year life. However, this project would compete with other TexMex products and would reduce their pretax annual cash flows. What is the project’s NPV? (Hint: Cash flows are constant in Years 1–3.) WACC 10.0% Pre-tax cash flow reduction for other products (cannibalization) −$5,000 Investment cost (depreciable basis) $80,000 Straight-line depreciation rate 33.333% Annual sales revenues $67,500 Annual operating costs (excl. depreciation) −$25,000 Tax rate 35.0% . Show solution.
Analyze the financial problem faced by this project. You are given the following information at the end of year 1 of the 3-year project. Describe how well the team is progressing in terms of schedule and cost? What do you expect the EAC to be depend..
A fast-growing firm recently paid a dividend of $0.35 per share. The dividend is expected to increase at a 20 percent rate for the next four years. Afterwards, a more stable 11 percent growth rate can be assumed. If a 12.5 percent discount rate is ap..
One day (i.e. Day 0), you opened a long position on a current month stock futures contract on Stock Y at a settlement price of $35.50. The contract multiplier was 1,000. The initial margin and the maintenance margin for the contract were $6,400 and $..
During recent years your company has made considerable use of debt ?nancing, to the extent that it is generally agreed that the percent debt in the ?rm's capital structure is too high.
Pybus, Inc., is considering issuing bonds that will mature in 20 years with an 8 percent annual coupon rate. Their par value will be $1000, and the interest will be paid semiannually. Pybus is hoping to get a AA rating on its bonds and, if it does, t..
If the exchange rate value of the euro goes from U.S. $1.15 to U.S. $1.05, then:
A few years ago a subsidiary of Stanley Works offered to purchase another company for $54.3 million in order to diversify its business. One way to value an entire company is to find the present value of the annual cash flows generated by the company...
Written Assignment: You have decided to invest in an equally weighted portfolio consisting of American Express, Proctor & Gamble, Home Depot, and E. I. du Pont and need to find the beta of your portfolio. Without adding new assets, how would you adju..
What is the expected time to complete a task with an optimistic, most likely, and pessimistic times of 3, 4 and 7 days respectively? What is the standard deviation of the same task, assuming the estimates were made at the 99% plus level?
Discuss the disadvantages of ratio analysis. You must use questions 1 to 3 and examples from your workplace to substantiate your discussion
Essary Enterprises has bonds on the market making annual payments, with twelve years to maturity, a par value of $1,000, and selling for $972. At this price, the bonds yield 7.1 percent. What must the coupon rate be on the bonds?
Find the convexity of a seven-year maturity, 6.0% coupon bond selling at a yield to maturity of 7.2%. The bond pays its coupons annually.
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