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Shao Airlines is considering two alternative planes. Plane A has an expected life of 5 years, will cost $100 million and will produce net cash flows of $30 million per year. Plane B has a life of 10 years, will cost $132 million and will produce net cash flows of $25 million per year. Shao plans to serve the route for only 10 years. Inflation in operating costs, airplane costs, and fares is expected to be zero, and the company's cost of capital is 12%. By how much would the value of the company increase if it accepted the better project (plane)? What is the equivalent annual annuity for each plane?
The beta of Guardiola Corporation is 1.5, market risk premium is 5.33 percent, and risk free rate is 4 percent. What is the value of corporation’s stock today?
Madeline Manufacturing Inc.’s current stock price is $45 per share. Call options for this stock exist that permit the holder to purchase one share at an exercise price of $40. These options will expire at the end of 1 year, at which time Madeline’s s..
You are considering the following two equally-risky investments. If you are indifferent between these two investments, what is the NPV of Project B?
An asset was purchased three years ago for $100,000 and can be sold for $40,000 today. The asset has been depreciated using the MACRS 5-year recovery period and the firm pays 40% taxes on both ordinary income and capital gain. SHOWING WORK- Compute t..
management uses the subjective approach and applies an adjustment factor of +3 percent to the cost of capital for such risky projects.
Suppose a stock has historical volatility of 15% and the market is pricing options on that stock based on this historical volatility.
As a consultant to GBH Skiwear, you have been asked to compute the appropriate discount rate to use in the evaluation of the purchase of a new warehouse facility. Calculate component weights of capital. The weight of debt in the firm’s capital struct..
Why are home equity loans attractive today? How do some banks tie home equity loans to a customer's credit card? How did the credit crisis and subprime problems of 2008-2009 change the attractiveness of home equity loans? How might this change in the..
How much will the patient pay for physician appointments each year? How much will be paid by the insurance company?
Becker Industries is considering an all equity capital structure against one with both debt and equity. The all equity capital structure would consist of 38,000 shares of stock. The debt and equity option would consist of 19,000 shares of stock plus ..
When you make your first payment in one month, how much of the payment will go toward the principal of the loan and how much will go toward interest?
How much will be in the account immediately after you make the first withdrawal?
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