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Your client is a biochemist who has discovered a technique to create a new biofuel. He estimates it will take him 2 years to make it economically feasible at a cost of $2,000,000. He is willing to put in $400,000 of his own money and has secured a line of credit for 2 years at 12% to cover the rest. a) Assume that loan is set up as interest-only (meaning any accrued interest is paid monthly) and interest is accrued monthly based on average daily balance. Assume further that the $1,600,000 is withdrawn ratably over the 2 year period, with withdrawals taken out on the 15th of every month. What is total cost of the line of credit? (5 points) b) He estimates that there’s an 80% chance that at the end of the 2 year period, he can sell the patent of the process for $10,000,000. Assume that all of the costs incurred were capitalized as costs of the patent, he has a combined federal and state tax rate of 30% and he has an expected rate of return of 8%. What is the present value of his expected payoff?
L.J.’s Toys Inc. just purchased a $474,000 machine to produce toy cars. The machine will be fully depreciated by the straight-line method over its six-year economic life. Each toy sells for $27. The variable cost per toy is $12, and the firm incurs f..
Felicia & Fred’s Firm have now considered furthering their plans for expansion of manufacturing facilities. Their first option is by customizing and refurbishing the large former mill building located in New England near the main production facility...
Absalom Motors's 15% coupon rate, semi annual payment, $1,000 par value bonds that mature in 30 years are callable 4 years from now at a price of $750. The bonds sell at a price of $1,300, and the yield curve is flat. Assuming that interest rates in ..
The preferred stock of AKA Enterprises pays an annual dividend of $8.50 and sells for $55.74 a share. What is the rate of return on this security?
You purchase a $1,000 par value, 6% annual coupon rate bond for the price of $960 on 4/26/2016. ?The most recent interest payment was on 12/01/2015 and the next interest payment is scheduled for 06/01/2016. ?What is the total amount you must pay for ..
You purchase a $10,000 bond with a bond rate of 6% per year payable semiannually for 2 years. You pay $9,600 for the bond.
You were hired as a consultant to Quigley Company, whose target capital structure is 35% debt, 10% preferred, and 55% common equity. The interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the cost of common from retained earning..
During recent years your company has made considerable use of debt ?nancing, to the extent that it is generally agreed that the percent debt in the ?rm's capital structure is too high.
Deployment Specialists pays a current (annual) dividend of $1 and is expected to grow at 24% for two years and then at 5% thereafter. If the required return for Deployment Specialists is 9.5%, what is the intrinsic value of Deployment Specialists sto..
Which of the following conclusions would be true if you earn a higher rate of return on your investments? Select one: The greater the present value would be for any lump sum you would receive in the future. The greater the present value would be for ..
A company is going to issue a $1,000 par value bond that pays a 7% annual coupon. The company expects investors to pay $942 for the 20-year bond. The expected flotation cost per bond is $42, and the firm is in the 34% tax bracket. Compute the followi..
Billingham manufactures microwaves to a selected few electrical retail outlets. The company is very image conscious and as a result command a premium price in the market place. Calculate the profit or loss to the company of selling 500 Microwave’s to..
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