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The most likely outcomes for a particular project are estimated as follows: Unit price: $80 Variable cost: $60 Fixed cost: $280,000 Expected sales: 30,000 units per year However, you recognize that some of these estimates are subject to error. Suppose that each variable may turn out to be either 5% higher or 5% lower than the initial estimate. The project will last for 10 years and requires an initial investment of $1.0 million, which will be depreciated straight-line over the project life to a final value of zero. The firm’s tax rate is 40% and the required rate of return is 10%.
a. What is project NPV in the best-case scenario, that is, assuming all variables take on the best possible value? (A negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to the nearest dollar amount.) NPV $
b. What is project NPV in the worst-case scenario? (A negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to the nearest dollar amount. Assume all tax losses can be applied to other taxable gains each year.) NPV $
The December 31, 2013, balance sheet of Schism, Inc., showed long-term debt of $1,400,000, $140,000 in the common stock account and $2,650,000 in the additional paid-in surplus account. What was the firm’s operating cash flow during 2014?
A Treasury STRIPS matures in 9 years and has a yield to maturity of 4.9 percent. Assume the par value is $100,000. a. What is the price of the STRIPS? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign i..
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Price a call option with a stock price of $80, a strike price of $75, 3 months to maturity, a 5% risk-free rate of return, and a standard deviation of 20% on the underlying stock.
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LKL Corporation will need 225,000 Canadian dollars (C$) in 90 days to cover a payable position. Currently, a 90-day call option with an exercise price of $.75 and a premium of $.01 is available. LKL plans to purchase options to hedge its payable posi..
Compact fluroscent lamps (CFLs) have become popular in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent light bulb costs $.50 and lasts 1,000 hours. A Kilowatt-hour of electricity costs $.101, which is about nati..
If the annualized rate of return on insured tax-exempt municipal bonds will be 3% per annum and the inflation rate remains at 2% per annum, then what will be their real rate of return over 30 years?
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If you were to issue a bond for your organization to raise funds for a capital project, what type of bond would you choose and why?
The NOI is $40,000; there are $5,000 in tenant improvement expenditures paid for by the landlord; What is the Equity After-Tax Cash Flow (EATCF)??
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