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A project has an initial requirement of $83,389 for equipment. The equipment will be depreciated to a zero book value over the 5-year life of the project. The investment in net working capital will be $19,548. All of the net working capital will be recouped at the end of the 5 years. The equipment will have an estimated salvage value of $22,842. The annual operating cash flow is $40,658. The cost of capital is 7 percent. What is the project’s net present value if the tax rate is 38 percent?
The Thompson Corporation projects an increase in sales from $1.5 million to $3 million, but it needs an additional $300,000 of current assets to support this expansion. What is the effective, or equivalent, annual cost of the trade credit?
Dividend and Capital Gain Yields 1.Paul Dargis has analyzed five stocks and estimated the dividends they will pay next year as well as their prices at the end of the year. His projections are shown below. Compute the dividend yield, capital gains yie..
Using the P/E ratio approach to valuation, calculate the value of a share of stock.
To be accepted, projects that are unusually risky should have to earn Internal Rates of Return that are ____ those earned by a firm’s typical projects.
Preissle Company, wants to sell some 20-year, annual interest, $1,000 par value bonds. Its stock sells for $42 per share, and each bond would have 25 warrants attached to it, each exercisable into one share of stock at an exercise price of $47. The f..
Suppose that the exchange rate is 1 dollar for 120 Yen. The dollar interest rate is 5%(continuously compounded) and the yen rate is 1%(continuously compounded). Consider an at the money American dollar call that is yen-denominated. The option has 1 y..
Bond J is a 6 percent coupon bond. Bond K is a 10 percent coupon bond. Both bonds have 15 years to maturity and have a YTM of 6.6 percent. a. If interest rates suddenly rise by 2.4 percent, what is the percentage price change of these bonds If intere..
The president of Lowell Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer’s price is $60,000 and it falls into the MACRS 3-year class (33% in year 1, 45% in year 2, 15% in year 3, and 7% in year 4). The firm’s ma..
You are a rancher who purchased cattle last summer. The purchase price was $2,500 for two head of cattle (2 cows). You borrowed $30,000 at 4% interest for 1 year from your bank to purchase 12 head of cattle. After feeding and taking care of your 12 c..
The total asset turnover ratio TATO (Sales/TA) of XYZ is 1.60x, its net profit margin (NI/Sales) is 8%, and its debt is half its equity (i.e. D/E ratio is 1/2). The company has $6,000,000 in assets. Calculate XYZ’s return on equity (ROE). The common ..
Firms R and S are similar firms in the same industry. Firms R and S have the same profit margin and total asset turnover when compared. However, Firm R's capital structure is 60% debt, 40% equity, and Firm S's capital structure is 30% debt, 70% equit..
Firms that achieve higher growth rates without seeking external financing
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