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Here is Project 2: Hampton Company: The production department has been investigating possible ways to trim total production costs. One possibility currently being examined is to make the cans instead of purchasing them. The equipment needed would cost $1,000,000, with a disposal value of $200,000, and would be able to produce 27,500,000 cans over the life of the machinery. The production department estimates that approximately 5,500,000 cans would be needed for each of the next 5 years. The company would hire six new employees. These six individuals would be full-time employees working 2,000 hours per year and earning $15.00 per hour. They would also receive the same benefits as other production employees, 15% of wages in addition to $2,000 of health benefits. It is estimated that the raw materials will cost 30¢ per can and that other variable costs would be 10¢ per can. Because there is currently unused space in the factory, no additional fixed costs would be incurred if this proposal is accepted. It is expected that cans would cost 50¢ each if purchased from the current supplier. The company's minimum rate of return (hurdle rate) has been determined to be 11% for all new projects, and the current tax rate of 35% is anticipated to remain unchanged. The pricing for the company’s products as well as number of units sold will not be affected by this decision. The unit-of-production depreciation method would be used if the new equipment is purchased. Required: 1. Based on the above information and using Excel, calculate the following items for this proposed equipment purchase. o Annual cash flows over the expected life of the equipment o Payback period o Simple rate of return o Net present value o Internal rate of return The check figure for the total annual after-tax cash flows is $271,150. 2. Would you recommend the acceptance of this proposal? Why or why not? Prepare a short, double-spaced paper in MS Word elaborating on and supporting your answer.
Calculate the value of a call option on the stock with an exercise price of $132.
What is a long only commodity fund, describe its main features. Long only commodity fund have generated returns similar to diversified equity funds. What are the components of the returns from a long only commodity fund? Are commodities a separate as..
Which of the following are agency costs? 1. Paying a dividend to each existing shareholders. 2. Purchasing new equipment which increases the value of each share of stock. 3. Hiring outside auditors to verify the accuracy of the company finance statem..
Beginning three months from now, you want to be able to withdraw $3,700 each quarter from your bank account to cover college expenses over the next four years. Required: If the account pays .77 percent interest per quarter, how much do you need to ha..
What would be the value of a put option on a stock with a strike price of $50 and expiring in half a year, if today’s stock price is $40, risk-free rate is 1%, the expected volatility is 50% and the stock does not pay a dividend. Value the put option..
The Net Present Value decision technique may not be the only pertinent unit of measure if the firm is facing
For a U.K. firm to hedge a ?100,000 payable using options, there are two possible ways the firm can approach this. Can you please provide a description of each of the two possible hedging approaches?
Suppose the exchange rate between U.S. dollars and Japanese yen is $1 US=¥ 79.1 JPY, and the exchange rate between the U.S. dollar and the British pound is $1 US = £0.64 GBP. What is the cross rate of Japanese yen to British pounds? (In other words, ..
Rose Resources faces a smooth annual demand for cash of $10.3 million; incurs transaction costs of $340 every time they sell marketable securities, and can earn 4.2 percent on their marketable securities. What will be their optimal cash replenishment..
Firm X’s stock is currently selling for $60 a share. The firm is expected to earn $5.40 per share this year and to pay a year-end dividend of $3.60. Show your work.
What annual rate of return is implied on a $2,500 loan taken next year when $5,250 must be repaid in year 6? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Cerner’s stock has a required return of 12%, and the stock sells for $40 per share. The firm just paid a dividend of $1.00, and the dividend is expected to grow by 30% per year for the next 4 years, so D4 = $1.00*(1.3)4 = $2.8561. After t = 4, the di..
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