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You are a financial analyst for Monument Properties and are asked by your boss to analyze two proposed capital investments with the same initial investment of 100K, Projects X and Y. Project X is somewhat boring having regular cash flow of 49K for each of the next 5 years. Project Y has cash flows of 10k each in years two and three, followed by a big payoff in years four and five of 100K and 175K, respectively. The VP of Finance lets you know that cost of capital is 13.5%.
a) Calculate NPV for each project.
b) Calculate internal rate of return as your boss likes a percentage.
c) Calculate the payback period for the VP of Sales.
d) Which project(s) should be accepted if they are independent?
e) Which project(s) should be accepted if they are mutually exclusive?
f) Oops! Why did you believe the VP of Finance? The CFO believes the cost of capital is probably 6%. Calculate NPV with this rate and see if it affects your recommendations for independent projects.
g) Better to be thorough and see if lower cost of capital affects your choice with mutually exclusive projects also.
Suppose your company needs $18 million to build a new assembly line. Your target debt−equity ratio is .8. The flotation cost for new equity is 11 percent, but the flotation cost for debt is only 8 percent. What is your company’s weighted average flot..
Standish Company began the year with a balance in its Income Taxes Payable account of $5,000. The year-end balance in the account was $18,000. The company uses the indirect method in the Operating Activities section of the statement of cash flows. Wh..
Tierney Enterprises is constructing its cash budget. Its budgeted monthly sales are $7,000, and they are constant from month to month. 40% of its customers pay in the first month and take the 2% discount, while the remaining 60% pay in the month foll..
In a slow year, Deutsche Burgers will produce 3.2 million hamburgers at a total cost of $3.4 million. In a good year, it can produce 4.8 million hamburgers at a total cost of $4.6 million. What are the variable and fixed costs of hamburger production..
Bond-A: $ 1000 Face value, 5 year term, 5% coupon. Bond-B: $ 1000 Face value, 20 year term, 5% coupon. a. Price the bonds if your required rate of return is 5%. b. Price the bonds if your required rate of return is 7%. c. Price the bonds if your requ..
A person owns 400 shares of XYZ common stock which cost $20,000. XYZ then had a 2-for-1 stock split. After the split, the person sold 100 shares for $10,000. How much gain (or loss) resulted from the sale?
Find the following values for a lump sum assuming annual compounding:
During 2014, Raines Umbrella Corp. had sales of $860,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $680,000, $85,000, and $180,000, respectively. In addition, the company had an interest expense of $55,0..
Rainbow Company has a debt-equity ratio of 1.36. Return on assets is 7.61 percent, and total equity is $680,000. What is the equity multiplier? What is the return on equity? What is the net income?
The X Baking Co. orders flour using a continuous review inventory model. X's ordering cost is $45, its inventory carrying percentage is 20% (i.e. i=0.2), the flour costs 45 cents per pound, the annual demand for flour is 100,000 pounds. Assuming dema..
Norma has one share of stock and one bond. The total value of the two securities is 1,416.3 dollars. The stock pays annual dividends. The next dividend is expected to be 5.84 dollars and paid in one year. In two years, the dividend is expected to be ..
On Feb 29th, the dollar to euro spot rate was $1.1300/€ and the 3-month forward rate was $1.1500/€. Calculate the annualized forward premium on the euro (against the dollar) Calculate the annualized forward premium on the dollar (against the euro)
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