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Teresa’s Tanning Salon expects annual sales of $175,000, annual fixed cash outlays are $57,000 a year at each location, variable cash outlays are 22 percent of sales, depreciation is $15,000 per year, and taxes are 32% (of pretax income). Initial outlay for the building is $140,000. The company does its analysis based on a 10-year store life. We believe the business can be sold for $100,000 after taxes (disposal value) at the end of its 10 year lifer. Using an 10% required return, what is the net present value of this venture?
For the last 19 years, Mary has been depositing $500 in her savings account , which has earned 5% per year, compounded annually and is expected to continue paying that amount. Mary will make one more $500 deposit one year from today. If Mary closes t..
Marko, Inc. is considering the purchase of ABC Co. Marko believes that ABC Co. can generate cash flows of $9,953, $6,030, and $13,798 over the next three years, respectively. After that time, they feel the business will be worthless. Marko has determ..
A bond has a yield to maturity of 4.5% , Face value of $1000, and 8 years until maturity. In excel, compute and graph the price of this bond for coupon rates of 0% to 20%, in 1% increments, with payments made semi-annually. Also compute the duration.
First Simple Bank pays 9 percent simple interest on its investment accounts. If First Complex Bank pays interest on its accounts compounded annually, what rate should the bank set if it wants to match First Simple Bank over an investment horizon of 1..
Leaf It To Us Corporation is considering an expansion project. The necessary equipment could be purchased for $22,287,200 and shipping and installation costs are another $14,220. The project will also require an initial $156,699 investment in net wor..
Stocks X and Y have the following probability distributions of expected future returns.. Calculate the expected rate of return. Calculate the standard deviation of expected returns for stock X (y=20.35%) and the coefficient variation for stock Y. Is ..
Adams Manufacturing Inc. buys $9.8 million of materials (net of discounts) on terms of 2/10, net 50; and it currently pays after 10 days and takes the discounts. Adams plans to expand, which will require additional financing. What would be the nomina..
Explain how the corporate valuation model and the adjusted present value (APV) method are used to estimate the value of a target company. If someone did a complete and careful analysis of a given target using both of these methods, would they produce..
The market value of Cable Company's equity is $60 million, and the market value of its risk-free debt is $40 million. If the required rate of return on the equity is 15% and that on the debt is 5%, calculate the company's cost of capital. (Assume no ..
Assume that interest rate parity holds and that 90-day risk-free securities yield 3% in the United States and 3.6% in Germany. In the spot market, 1 euro equals $1.38 dollar. Is the 90-day forward rate trading at a premium or discount relative to the..
Suppose that there are two securities RAIN and SUN. RAIN pays $100 in there is any rain during the next world cup soccer final. SUN pays $100 in there is no rain. Suppose that the world cup soccer final is 1 year from today (although this is not true..
You want to build a two asset portfolio including SPDRs and T-bills that has an expected return of 3.36%. A SPDR is a standard and Poor's Depositary Receipt. A SPDR is an exchange traded fund that is designed to generate the same return as the S&P 50..
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