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Simms Enterprises is attempting to evaluate the possibility of investing $85,000 in a machine having a 5-year life. The firm has estimated the cash inflows associated with the proposal as shown below. Simms has a capital structure containing 40% debt, 20% preferred stock, and 40% common stock. The firm’s outstanding bonds have an $80 annual coupon, a par-value of $1,000, 10 years left to maturity, and a current price of $1,250. The firm’s annual preferred stock dividend is $4.00 and their preferred shares are currently selling for $20. The firm’s common stock has a beta of 1.3. The risk-free rate is 3% and the required return on the market is 9%. The firm faces a tax rate of 40%.
CF1 $18,000 CF2 $22,500 CF3 $27,000 CF4 $31,500 CF5 $36,000
a. What is the firm’s wacc? b. What is the project’s payback? c. What is the project’s discounted payback? d. What is the projects net present value? e. What is the internal rate of return on this investment? f. What is the project’s modified internal rate of return? g. Should you accept this project? Why?
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Early in September 1983, it took 255 Japanese yen to equal $1. Nearly 28 years later, in August 2011, that exchange rate had fallen to 125 yen to $1. Has the price, in dollars, of the automobile increased or decreased during the 28-year period becaus..
________ is at the heart of corporate finance, because it is concerned with making the best choices about project selection.
After completing its capital spending for the year, Carlson Manufacturing has $2,500 extra cash. Carlson’s managers must choose between investing the cash in Treasury bonds that yield 3 percent or paying out the cash to investors who would invest in ..
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You are considering buying a house for $200,000. You have $40,000 in your bank account which pays 1% APR compounded monthly. If you contribute 10% of the price of the house as a down payment, the terms of your mortgage will be an original balance of ..
Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $5.886 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will have a ma..
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