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Roy is analyzing a 5-year project with an initial cost of $210,000, a required return of 16 percent, and a probability of success of 62 percent. If the project fails, it will generate an annual after-tax cash flow of –$48,500. If the project succeeds, the annual after-tax cash flow will be $79,000. He has further determined that if the project fails, he will shut it down after the first year and lose all of his original investment. If, however, the project is a success, he can expand it with no additional investment and increase the after-tax cash flow to $154,000 a year for Years 2–5. At the end of Year 5, the project would be terminated and have no salvage value. What is the net present value of this project at Time 0?
For the period 1926-2008, small-company stocks had a risk premium of 12.6 percent. What does the term "risk premium" mean? Is the risk premium on these stocks considered to be relatively high or relative low as compared to other investment classes? E..
Wainright Co. has identified an investment project with the following cash flows. Year Cash Flow 1 $ 850 2 1,190 3 1,450 4 1,600 If the discount rate is 7 percent, what is the present value of these cash flows? (Do not round intermediate calculations..
HotFoot Shoes would like to maintain its cash account at a minimum level of $40,000, What will be its optimal cash return point?
Suppose there are no government zero-coupon bonds. If investors demand default-free zeros, outline the process that would create these zeros using government coupon paying bonds. Illustrate the method with a case of a four-year, 5 percent government ..
The common stock and debt of Northern Sludge are valued at $60 million and $40 million, respectively. Investors currently require a return of 17.0% on the common stock and 7.0% on the debt. If Northern Sludge issues an additional $24 million of commo..
As the chief finacial officer of Cascade Designs, Calculate Cascade's times-interest-earned ratio for next year assuming the firm raises $70 million of new debt at an interest rate of 6%. Calculate Cascade's time-burden-covered ratio for next year as..
You have a stock market portfolio with a beta of 1.15 that is currently worth $300 million. You wish to hedge against a decline using index options. Suppose you decide to use SPX calls. Calculate the number of contracts needed if the call option you ..
ABC’s the most recent free cash flow (FCF0) is $50 million. The free cash flow is expected to grow at a rate of 30 percent, 20 percent, and 10 percent in each of the next three years. After three years, it is expected to grow forever at a constant ra..
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.76 million.
Given the following information for Electric Transport. Assume the company's tax rate is 34 percent. Debt: 7,500, 8.4 percent coupon bonds outstanding. $1,000 par value, 22 years to maturity, selling for 103 percent of par, the bonds make semi annual..
McGilla Golf has decided to sell a new line of golf clubs. What are the best-case and worst-case NPVs?
The annual interest rate was 2.96% and the annual dividend yield was about 4.3%. a. Based on the current spot price, what should be the futures price?
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