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Calculating free cash flows) Double meat Palace is considering a new plant for a temporary customer, and its finance department has determined the following characteristics. The company owns much of the plant and equipment to be used for the product. This equipment was originally purchased for $90,000; however, if the project is not undertaken, this equipment will be sold for $50,000 after taxes; in addition, if the project is not accepted, the plant used for the project could be sold for $105,000 after taxes—the plant originally cost $40,000. The rest of the equipment will need to be purchased at a cost of $150,000. This new equipment will be depreciated by the straight line method over the project’s 3-year life, after which it will have zero salvage value. No change in net operating working capital would be required, and management expects revenues resulting from this new project to be $234,000 per year for 3 years, while increased operating expenses, excluding depreciation, are expected to be $82,000 per year over the project’s 3-year life. The average tax rate is 25 percent and the marginal tax rate is 30 percent. The required rate of return for this project is 8 percent. What is the project’s NPV ?
You will receive 2,500 in bonuses each year for the next three years (at the end of each year). You are hoping to use these bonuses for a car down payment in about ten years. At a 7.79% discount rate, how much will you have saved? (Round to two decim..
Bill Farmer has had some financial problems and cannot pay the $200,000 loan that is due next week (i.e. now). Bill's lender agrees to accept 5 annual payments of $46,000 each for the next 5 years instead, with the first payment due one year from now..
Your firm has an average collection period of 39 days. Current practice is to factor all receivables immediately at a 2.00 percent discount. What is the effective cost of borrowing in this case?
Describe the basic characteristics of currency hedging tools: forwards, futures, swaps, options and more complex options (caps, floors, collars), as well as “natural hedges” on a corporation’s balance sheet.
A bond has a $1,000 par value, 10 years to maturity, and a 8% annual coupon and sells for $980. Yield to Maturity is 8.30213. Assume that the yield to maturity remains constant for the next 4 years. What will the price be 4 years from today?
Knight Inventory Systems, Inc., has announced a rights offer. The company has announced that it will take three rights to buy a new share in the offering at a subscription price of $50. At the close of business the day before the ex-rights day, the c..
Considering the risk around the cost point estimate, what type of contract will generally be used for the contracted effort?
Kelly's uses the firm's WACC as the required return for some of its projects. For other projects, the firms uses a rate equal to WACC plus 1 percent, while another set of projects is assigned rates equal to WACC minus some amount. Which one of the fo..
Over the past 5 years, NBA’s common stock earnings per share have grown from $0.62 to $0.91. If an investor in NBA stock is assumed to have a required rate of return of 14%, what is the estimated value of NBA if its current dividend is $0.12? Assume ..
Discuss unethical behavior that can result if the wrong performance measures are used to tie performance measures to compensation.
E88 is an innovative company run on the principles of its entrepreneurial owner. The company has a diverse range of operations including a carbon neutral package distribution service, 'responsibly' sourced clothing for children, mobile telephones and..
Compute the price of a 4.9 percent coupon bond with 15 years left to maturity and a market interest rate of 7.6 percent. What is the bond price? Is this a discount or premium bond?
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