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Debby’s Dance Studios is considering the purchase of new sound equipment that will enhance the popularity of its aerobics dancing. The equipment will cost $24,300. Debby is not sure how many members the new equipment will attract, but she estimates that her increased annual cash flows for each of the next five years will have the following probability distribution. Debby’s cost of capital is 10 percent. Cash flow Probability $ 3,980 .4 5,280 .2 8,140 .2 10,600 .2 (a) What is the expected value of the cash flow? (Omit the "$" sign in your response.) Expected cash flow $ (b) What is the expected net present value? Use Appendix D. (Round "PV Factor" to 3 decimal places, intermediate and final answers to the nearest dollar amount. Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.) Net present value $ (c) Should Debby buy the new equipment? No
a well diversified stock portfolio worth 30000000 has a beta of 1.4. the dividend yield of the portfolio is 2.1 per
Suppose a bank has 100 million dollars of assets to invest. It can either invest in risky or safe loans. Safe loans will be worth $105 M in one year with certainty. Risky loans will be worth either $70 M or $130 M in one year, each with equal probabi..
The common stock of PQR Inc. is expected to pay a dividend of $15 for each share exactly one year from now. Given the risk of the stock, the market requires a rate of return of 22%. The dividends are expected to grow in perpetuity at a constant rate ..
When the underlying stock pays dividends, exhibit a scenario in which early exercising an American call could be more beneficial than holding it till expiry. Even though the underlying stock pays no dividend and the riskless rate is positive, exhibit..
Would you recommend buying or selling this stock? Why? If your expected rate of return from the stock of Bulldog is 15 percent, what would you expect to happen to Bulldog's stock price?
A contractor estimates that maintenance on a new piece of equipment will be $275 for the first month and it will increase by 0.5% each month afterwards. However, the contractor is offered a service contract that would maintain the equipment for a tot..
An investment has the following possible outcomes based on the economy. Booming economy $ 40,000; Normal Economy $ 25,000; Recession Economy (-$ 15,000). Determine the expected value of the investment if the following probabilities are given: Booming..
JanAm generates $30 million in perpetual operating income (i.e., no change in investment policy). The company has a market capitalization of $100,000,000, and its share is currently selling at $100 per share. How can investors undo the effect of JanA..
Miller Company’s most recent contribution format income statement-The number of units sold increases by 13%. The selling price decreases by $1.50 per unit, and the number of units sold increases by 23%. The selling price increases by $1.50 per unit, ..
Banana Box Corporation has sales of $4004557; income tax of $430395; selling, general, and administrative expenses of $216999; depreciation of $337383; cost of goods sold of $2673891; and interest expense of $167118. Calculate the amount of the firm'..
Suppose your company is expected to grow at a constant rate of 6 percent long into the future. In addition, its dividend yield is expected to be 8 percent. If your company expects to pay a dividend equal to $1.06 per share at the end of the year, wha..
Integration planning is undertaken in which of the following acquisition activities?
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