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Debby’s Dance Studios is considering the purchase of new sound equipment that will enhance the popularity of its aerobics dancing. The equipment will cost $15,500. Debby is not sure how many members the new equipment will attract, but she estimates that her increased annual cash flows for each of the next five years will have the following probability distribution. Debby’s cost of capital is 13 percent. Use Appendix D for an approximate answer but calculate your final answers using the formula and financial calculator methods. Cash Flow Probability $ 4,390 .3 5,110 .2 8,240 .3 10,000 .2 a. What is the expected value of the cash flow? The value you compute will apply to each of the five years. What is the expected net present value? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.) c. Should Debby buy the new equipment? No Yes
A firm declared a dividend of $2 per share, which was an increase of 25% from the prior year, yet the stock declined by 3% the day of the announcement. Another firm declared a dividend of $2 per share, which was the same as the prior year, and its st..
Distinguish between interest income and dividend income. Does their treatment differ for tax purposes?- List the four classifications of deductible medical expenses. Are your total medical expenses deductible?
A bond has a $1,000 par value and an 8 percent coupon rate. The bond has four years remaining to maturity and a 10 percent yield to maturity. This bond's modified duration is ____ years.
On January 1, 2008, PWC awarded stock options to two of its top managers, Price and Waterhouse. Price received options to purchase 25,000 shares of PWC $1 par common stock at an exercise price of $10/share. Waterhouse received 15,000 options to purch..
The firm Davis, Martin and Zanders, Inc. (DMZ)has announced that it will issue 10 million shares of common stock through a rights issue at a subscription price of $20. Before the announcement, DMZ shares were trading at $26, and there were 50 million..
Demand and Supply Shocks Which of the following can be inflationary?
Suppose a company has a net income of $1,000,000 and a plowback ratio of 40%. There are 50,000 shares of stock outstanding. What will this year's dividend be? What should the stock price be today? What is this year's dividend yield? What is this year..
Suppose Stanley's Office Supply purchases 50,000 boxes of pens every year. Ordering costs are $100 per order and carrying costs are $0.40 per box. Moreover, management has determined that the EOQ is 5,000 boxes. Note: The ordering costs and EOQ diffe..
A project has the following estimated data: price = $79 per unit; variable costs = $46.61 per unit; fixed costs = $5,600; required return = 12 percent; initial investment = $6,000; life = six years. Ignore the effect of taxes. What is the accounting ..
Consider two mutually exclusive new product launch projects that Nagano Golf is considering. Assume the discount rate for Nagano Golf is 16 percent. Professional clubs that will take an initial investment of $740,000 at time 0. Next five years (Years..
The price sensitivity of a bond increases in response to a change in the market rate of interest as the:
You hold a stock portfolio worth $15 million with a beta of 1.05. You would like to lower the beta to 0.90 using S&P 500 futures, which have a price of 460.20 and a multiplier of 250. What transaction should you do?
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