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McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $830 per set and have a variable cost of $430 per set. The company has spent $153,000 for a marketing study that determined the company will sell 57,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 9,800 sets of its high-priced clubs. The high-priced clubs sell at $1,130 and have variable costs of $730. The company will also increase sales of its cheap clubs by 11,300 sets. The cheap clubs sell for $470 and have variable costs of $245 per set. The fixed costs each year will be $9,130,000. The company has also spent $1,140,000 on research and development for the new clubs. The plant and equipment required will cost $28,910,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1,330,000 that will be returned at the end of the project. The tax rate is 36 percent, and the cost of capital is 10 percent. Suppose you feel that the values are accurate to within only ±10 percent. What are the best-case and worst-case NPVs? (Hint: The price and variable costs for the two existing sets of clubs are known with certainty; only the sales gained or lost are uncertain.) (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
On a certain date, Kastbro has a stock price of $37.50, pays a dividend of $0.64, and has an equity cost of capital of 8%. An investor expects the dividend ratio to increase by 6% per year in perpetuity. He then sells all stocks that he owns in Kastb..
Verigreen Lawn Care products just paid a dividend of $1.85. This dividend is expected to grow at a constant rate of 3 percent per year, so the next expected dividend is $1.90. The stock price is currently $12.50. New stock can be sold at this price s..
The unlevered firm expects to earn $250,000 in net operating income each year for the foreseeable future. It has a tax rate of 40% and has a capitalization rate of 8% equal to the industry required return for this type of firm. What is the present va..
What initial position in 9-month silver futures is necessary for delta hedging? - If silver itself is used, what is the initial position?
Suppose that Neilson’s Restaurants has a liability exposure with expected loss payment equal to $3 million this year, $3 million next year, and $1 million in two years. What is the present value of the expected tax shield arising from Neilson’s liabi..
Prepare a depreciation schedule for the assets in the following transactions using the straight line method of depreciation: Analyze the results.
Hamble, Inc., has sales of $19,070, costs of $10,460, depreciation expense of $2,530, and interest expense of $1,600. If the tax rate is 35 percent, what is the operating cash flow, or OCF?
You placed $9,560 in a savings account today that earns an annual interest rate of 4.84 percent, compounded semi annually. How much will you have in this account at the end of 5 years? Assume that all interest received at the end of the period is rei..
Trigen Corp. management will invest cash flows of $1,340,423, $787,958, $958,711, $818,400, $1,239,644, and $1,617,848 in research and development over the next six years. If the appropriate interest rate is 7.15 percent, what is the future value of ..
Zombie Corp. has a profit margin of 5.1 percent, total asset turnover of 2.3, and ROE of 19.64 percent. What is this firm’s debt-equity ratio? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)
Which of the following statements is true of loan amortization? What is the appropriate interest rate to use when making interest rate comparisons if there is more than one compounding period per year?
The Urban Transport Company (UTC) in the city of Megopolis has been approached by a firm that has stated that by replacing the engines in their current fleet of mid capacity city buses with the engine built by the firm UTC will save over the 6 period..
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