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Sunshine Smoothies Company (SSC) manufactures and distributes smoothies. It is considering the introduction of a “weight loss” smoothie. The project would require a $4 million investment outlay today (t = 0). The after-tax cash flows would depend on whether the weight loss smoothie is well received by consumers. There is a 50% chance that demand will be good, in which case the project will produce after-tax cash flows of $2 million at the end of each of the next 3 years. There is a 50% chance that demand will be poor, in which case the after-tax cash flows will be $0.5 million for 3 years. The project is riskier than the firm’s other projects, so it has a WACC of 8%. The firm will know if the project is successful after receiving first year’s cash flows. After receiving the first year’s cash flows it will have the option to abandon the project. If the firm decides to abandon the project the company will not receive any cash flows after t = 1, but it will be able to sell the assets related to the project for $3.25 million after taxes at t = 1. What is the value of the abandonment option (in millions)? Round your answer to two decimal places.
Project A: 15,000 investment. Bank loan, 9% interest rate annual, monthly payments. Project B: 2,000 cash investment, plus 150 delivery, 650 installation. No required rate of return given, no equity. Cost of debt after tax 8%
Tailor? Johnson, a U.S. maker of fine? menswear, has a subsidiary in Ethiopia What is Tailor? Johnson's U.S. tax liability on its Ethiopian? subsidiary?
To buy a new house you must borrow $150,000. To do this you take out a $150,000, 30 year, 10% mortgage. Your mortgage payments, which are made at the end of each year (one payment per year), include the principal and 10% interest on the declining bal..
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The stock of Bruin, Inc., has an expected return of 13 percent and a standard deviation of 43 percent. The stock of Wildcat Co. has an expected return of 11 percent and a standard deviation of 37 percent. The correlation between the two stocks is .37..
If the $35,943,750 needed for the project is raised by selling new shares, what will the forecast for next year’s earnings per share (EPS) be?
Supernormal growth is a growth rate that
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Positive interactions between CEO and board will lead to better corporate performance and higher stock prices.
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