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Lakonishok Equipment has an investment opportunity in Europe. The project costs euro 14 million and is expected to produce cash flows of euro 2.4 million in Year 1, euro 3 million in Year 2, and euro 3.9 million in Year 3. The current spot exchange rate is $1.39/euro; and the current risk-free rate in the United States is 2.5 percent, compared to that in Europe of 2 percent. The appropriate discount rate for the project is estimated to be 12 percent, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated euro 9.4 million. Use the exact form of interest rate parity in calculating the expected spot rates. What is the NPV of the project in U.S. dollars?
When is it appropriate to use the firm's weighted average cost of capital (WACC) to evaluate a proposed investment and what would be the potential implications for Delta if WACC is used to evaluate the pet supply project?
Time Watch Co. has $46 million in earnings and is considering paying $6.45 million in interest to bond hloders and $4.35 million to preferred stockholders in dividends. What are the bondholders' contractual claims to payment?
Loctite, Inc. is looking at a project that will require $160,000 in fixed assets and another $40,000 in net working capital. The project is expected to produce sales of $220,000 with associated costs of $140,000. The project has a 4- year life. The c..
Discuss your thoughts and feelings about ethics and fairness in managerial decision-making. Do you believe we are becoming a less ethical nation? Why or why not.
ABC industries has 10 million shares outstanding with a market price of $20 per share and no debt. KD has consistently stable earnings, and pays a 35% tax rate. Management plans to borrow $100 Million on a permanent basis through a leveraged recapita..
Please define and describe in your own words the benefits and disadvantage of using payback period, NPV and IRR as means for evaluating project. Please explain how mutually exclusive projects influence these analysis tools.
To help finance a major expansion, Castro Chemical Company sold a no callable bond several years ago that now has 20 years to maturity. This bond has a 9.25% annual coupon, paid semi-annually, sells at a price of $875, and has a par value of $1,000. ..
Additional paid-in capital refers to:
The next dividend payment by Hot Wings, Inc., will be $4.25 per share. The dividends are anticipated to maintain a 2 percent growth rate forever. Required: If the stock currently sells for $51 per share, what is the required return? Format to 4 decim..
On January 1st, 2000, you purchased 20 shares of ABC stock at $15 per share. You received dividends of $0.75 at the end of 2000, $1.05 at the end of 2001; and $1.20 at the end of 2002. You sold all the ABC stocks at the end of 2002 for $18.5 per shar..
Company A is considering a merger with company B. B is publicly traded company and its current beta is 1.25. B has been barely profitable, so it has paid an average of only 15% taxes during the last several years. In addition, it uses little debt, ha..
Jiminy's Cricket Farm issued a 30-year, 7.2 percent semiannual bond 8 years ago. The bond currently sells for 93.5 percent of its face value. The company’s tax rate is 34 percent. What is the pretax cost of debt? What is the aftertax cost of debt?
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