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It's been two months since you took a position as an assistant financial analyst at Caledonia Products. Although your boss has been pleased with your work, he is still a bit hesitant about unleashing you without supervision. Your next assignment involves both the calculation of the cash flows associated with a new investment under consideration and the evaluation of several mutually exclusive projects. Given your lack of tenure at Caledonia, you have been asked not only to provide a recommendation, but also to respond to a number of questions aimed at judging your understanding of the capital-budgeting process. The memorandum you received outlining your assignment follows:We are considering the introduction of a new product. Currently we are in the 34% tax bracket with a 15% discount rate. This project is expected to last five years and then, because this is somewhat of a fad project, it will be terminated. The following information describes the new project:Cost of new plant and equipment:$ 7,900,000 Shipping and installation costs:$ 100,000 Unit sales:Year Units Sold1 70,0002 120,0003 140,0004 80,0005 60,000Sales price per unit: $300/unit in years 1-4 and $260/unit in year 5.Variable cost per unit: $180/unit Annual fixed costs: $200,000 per yearWorking capital requirements: There will be an initial working capital requirement of $100,000 just to get production started. For each year, the total investment in net working capital will be equal to 10% of the dollar value of sales for that year. Thus, the investment in working capital will increase during years 1 through 3, then decrease in year 4. Finally, all working capital is liquidated at the termination of the project at the end of year 5.Depreciation method: Straight-line over 5 years assuming the plant and equipment have no salvage value after 5 years1. Why should Caledonia focus on project free cash flows as opposed to the accounting profits earned by the project when analyzing whether to undertake the project?2. What are the incremental cash flows for the project in years 1 through 5 and how do these cash flows differ from accounting profits or earnings?3. What is the project's initial outlay?4. Sketch out a cash flow diagram for this project.5. What is the project's net present value? (William)6. What is its internal rate of return? (William)7. Should the project be accepted? Why or why not?
The company's stock has a beta of 1.8, the risk-free rate is 3.5%, and the market risk premium is 6%. What is your estimate of the stock's current price? Round your answer to the nearest cent.
What is the likely impact of this policy on Asian foreign exchange reserves? On Asian inflation? On Asian export competitiveness? On Asian living standards?
Can goals like avoiding unethical or illegal behavior be in conflict with the goal of the firm? How does this complicate the agency problem?
Construct a cash budget for a typical month and calculate the average cash gain or loss during the month.
For both types of firms, there is a 70% probability that the firm will have a 20% return and a 30% probability that the firm will have a -30% return.
You own the portfolio invested= 27.03% in Stock A, 16.48% in Stock B, 14.48% in Stock C, and remainder in Stock D. Beta of these 4 stocks are 0.76, 1.08, 0.66, and 1.1. Determine the portfolio beta?
Suppose you are planning a project which has been assigned a discount rate of 8 percent. If you start the project today, you will incur an initial cost of $480 and will receiv cash inflows of $350 a year for three years.
Dunbar Hardware, a national hardware chain, is planning buying a smaller chain, Eastern Hardware. Dunbar's analysts project that the merger will result in incremental free flows and interest tax savings with a combined present value of $72.52 million..
Give Preparation of common size statement for financial analysis and what is causing this drop in net income
During this tax year, company is liable to pay tax @ 35%, andinvestors are expecting that earnings and dividends will grow at a constant rate of 10%.Current year's dividend is Rs. 4 per share and the common stocks are selling at Rs. 60per share.
Describe the date Alice must start taking distributions from the account.
Computation efficient frontier for strategic decision and Plot the graph of the resulting portfolio returns and standard deviations
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