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An oil company just spent $100,000 to do an analysis and determined that there is oil beneath Antarctica. To extract the oil, the company would need to invest in a new rig today. The cost of the rig is $200,000 and is to be fully depreciated over 20 years using the straight-line depreciation method. The rig will be need to be placed on a penguin nesting site, and the current penguins occupying the site would need to be evicted and a new site built for them. The cost of maintaining the new nesting site will be $10,000 per year. The new rig will produce 1,000 barrels of oil per year, which will be priced at $100 each. The cost to extract the oil is $20 per barrel At the end of 2 years, you expect that oil production will cease and you will be able to sell the rig for $700,000. It is estimated that the firm needs to hold net working capital equal to 10% of total sales and that it will need to be injected today if the rig is purchased. The NWC balance will be withdrawn at the end of the project. The firm is in the 30% tax bracket and the opportunity cost of capital is 10%. Build a table of cash flows over the life of the project and use it to answer the following questions. a.) Are there any Opportunity Costs? b.) What are the EBIT, Depreciation, EBITDA and the Unlevered Net Income? c) What is the amount of the depreciation tax shield? d) What are the Free Cash Flows for the new rig? e) Should you invest in the rig? Briefly explain.
Would the United States gain from the combination of the export subsidy and import tariff? Would Canada? Explain.
What will be the effect of any gain or loss on the $500,000 notional difference?
Consider an asset that costs $484,000 and is depreciated straight-line to zero over its 12-year tax life. The asset is to be used in a 6-year project; at the end of the project, the asset can be sold for $60,500.
Consider a coupon bond with a $100 face value and a coupon payment equal to 3% of the face value per year. calculate the default risk premium.
A firm offers terms of 2/10 net 40. What effective annual interest rate does the firm earn when a customer does not take the discount?
Over the past several years, Gwen Fong has been able to save regularly. As a result, today she has $51,649 in savings and investments today. She wants to establish her own business in four years and feels she will need $100,000 to do so.
You have $11,040 in an investment account that you plan to invest in a mutual fund. This fund has an expected rate of return of 12.0 percent and a standard deviation of 17 percent. What would be the expected rate of return and standard deviation of y..
How can you design compensation and reward plans that meet the following goals for each function in the company (e.g., operations, sales, web design, as appropriate): You want to attract and retain high quality, experienced employees to the winery.
Calculate the difference in payments on a 30-year mortgage at 9% interest versus a 15-year mortgage with 8.5% interest.
Nachman Industries just paid a dividend of D0 = $1.75. Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%. What..
In a Dutch auction of 10,000 options, bids are as given: - What is the result of the auction? - Who buys how many at what price?
Federal bankruptcy law deals only with corporate bankruptcies. Municipal and personal bankruptcy are governed solely by state laws. All bankruptcy petitions are filed by creditors seeking to protect their claims against firms in financial distress. T..
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