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Your company has been approached to bid on a contract to sell 4,200 voice recognition (VR) computer keyboards per year for four years. Due to technological improvements, beyond that time they will be outdated and no sales will be possible. The equipment necessary for the production will cost $3.8 million and will be depreciated on a straight-line basis to a zero salvage value. Production will require an investment in net working capital of $95,000 to be returned at the end of the project, and the equipment can be sold for $275,000 at the end of production. Fixed costs are $640,000 per year, and variable costs are $155 per unit. In addition to the contract, you feel your company can sell 9,500, 10,400, 12,500, and 9,800 additional units to companies in other countries over the next four years, respectively, at a price of $310. This price is fixed. The tax rate is 40 percent, and the required return is 10 percent. The bid price you plan to submit is $290 per unit. What is the NPV of the project? What is the IRR? How much does the NPV change if you change the bid price to $289 per unit?
Please show all your work and how you got each answer.
It represents the most recent years operations, which ended yesterday. Your Supervisor in the controller’s office has just handed you a memorandum asking for written responses to the following questions: If sales should increase by 25%, by what perce..
PriceWar Industries recently paid a dividend of D0=$1.32. We expect the company's dividend to grow by 30% this year, by 20% in year 2, and at a constant rate of 5% in year 3 and thereafter. The required return on this low-risk stock is 9.00%. What is..
Third Bank has the following balance sheet (in millions), with the risk weights in parentheses. What are the risk-adjusted on-balance-sheet assets of the bank as defined under the Basel Accord? To be adequately capitalized, what are the CET1, Tier I,..
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Describe the maximum gain when a bear spread is created from the calls Describe the maximum loss when a bear spread is created from the calls
Juan is an elderly man who lives with his nephew, Samuel. Juan is totally dependent on Samuel's support. Samuel tells Juan that unless he transfers a tract of land he own to Samuel for a price 35 percent below its market value, Samuel will no longer ..
Beatrice invests $1,440 in an account that pays 3 percent simple interest. How much more could she have earned over a 4-year period if the interest had compounded annually?
The assets of Dallas & Associates consist entirely of current assets and net plant and equipment. The firm has total assets of $3 million and net plant and equipment equals $2.5 million. What is the amount of total liabilities and equity that appears..
Consider the following cash flows: Year Cash Flow 0 −$31,000 1 17,300 2 15,200 3 10,600 Requirement 1: What is the profitability index for the above set of cash flows if the relevant discount rate is 10 percent?
The six month and one-year rates are 3% and 4% per annum with semi-annual compounding. Is 3.90% or 3.95% or 3.99% closest to the one-year par yield expressed with semi-annual compounding?
Bradford Manufacturing Company has a beta of 1, while Farley Industries has a beta of 0.85. The required return on an index fund that holds the entire stock market is 9.5%. The risk-free rate of interest is 4.5%. By how much does Bradford's required ..
Suppose the prevailing interest rate, or yield to maturity is 6%. All bonds have $100 face value. Price a discount bond of 10 year maturity. Show your work. Write down the formula you would use to price an annual coupon bond with annual coupon rate o..
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