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1. Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12.05 million. This investment will consist of $2.20 million for land and $9.85 million for trucks and other equipment. The land, all trucks, and all other equipment are expected to be sold at the end of 10 years for a price of $5.15 million, which is $2.50 million above book value. The farm is expected to produce revenue of $2.10 million each year, and annual cash flow from operations equals $1.90 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment. (Do not round the discount factor. Round intermediate calculations and final answer to 2 decimal places, e.g. 15.25.)
2. Six Twelve, Inc., is considering opening up a new convenience store in downtown New York City. The expected annual revenue at the new store is $680,000. To estimate the increase in working capital, analysts estimate the ratio of cash and cash-equivalents to revenue to be 0.03 and the ratios of receivables, inventories, and payables to revenue to be 0.05, 0.10, and 0.04, respectively, in the same industry. What is the expected incremental cash flow related to working capital when the store is opened?
Compute the Percentage of earnings retained, Price/earnings ratio, Dividend payout, Dividend yield and Book value per share for 2011, 2010, and 2009:
Consider an asset that costs $729,000 and is depreciated straight-line to zero over its nine-year tax life. The asset is to be used in a five-year project; at the end of the project, the asset can be sold for $176,000. If the relevant tax rate is 30 ..
What does it mean if a company has a payout ratio of 44.17 while the industry and sector ratios are 22.11 and 8.96? How are they performing against the industry and sector ratios? Why are they performing as such?
Wanda sells stock in Martin Corporation to her brother Willis for $1,800. She had purchased the stock four years ago for $3,000 and the current fair market value of the stock is $1,800. Willis paid her $1,800 for the stock. Which of the following sta..
Debt: 5,000 6 percent coupon bonds outstanding, $1,000 par value, 23 years to maturity, selling for 103 percent of par; the bonds make semiannual payments. Common stock: 105,000 shares outstanding, selling for $61 per share; the beta is 1.1. Find the..
The risk-return trade off that investors face on a day-to-day basis is based on realized rates of return because expected returns involve too much uncertainty.
Touching up peeling paing is an example of curing
Suppose 1-year T-bills currently yield 6.00% and the future inflation rate is expected to be constant at 2.95% per year. What is the real risk-free rate of return, r*?
Assume you have a one-year investment horizon and are trying to choose among three bonds. All have the same degree of default risk and mature in 10 years. The first is a zero-coupon bond that pays $1,000 at maturity. If you expect their yields to mat..
Think of a product that you could produce either as a company or an individual. What would be involved in the production? What are the direct costs? Indirect costs? Overhead?
Stock A has a standard deviation equal to 20% and an expected return of 11%. Stock B has a standard deviation equal to 25% and an expected return of 14%. The correlation coefficient of the returns on Stock A and Stock B is 50%. How much must you inve..
Assume that you hold a well-diversified portfolio that has an expected return of 11.0% and a beta of 1.20. You are in the process of buying 1,000 shares of Alpha Corp at $10 a share and adding it to your portfolio. Alpha has an expected return of 17...
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