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Thomson Media is considering some new equipment whose data are shown below. The equipment would be depreciated over a 3 year MACRS life, but it would have a salvage value at the end of Year 3, when the project would be closed down. An increase in working capital would be required at time 0. Should the project be accepted? What is the project’s NPV? WACC 10.0% Net investment in fixed assets (depreciable basis) $70,000 Required new working capital $10,000 MACRS deprec. rates 33 %, 45%, 15% , 7% Increase in sales revenues, each year $75,000 Increase in operating costs (excl. deprec.), each year $30,000 Expected pretax salvage value $5,000 Tax rate 35.0%
Adams operates his $25000 firm using his own equity. Bob operates his firm with $12500 of his own money plus $12500 of debt at a cost of 12 percent interest. Calculate Adams's and Bob's return on equity if their respective businesses produce earnings..
Biopharma is a pharmaceutical company. Biopharma’s annual stock returns have a CAPM beta of 1.25 (i.e. β =1.25). The market portfolio’s return is 13%, and the riskfree rate is 5%. a. What is the required expected return for Biopharma according to the..
Calculate with explanation the unit costs of the souvenirs and determine the price of the souvenirs and explain any other information that might be relevant for deciding the price
Describe the Internal Rate of Return (IRR) method for determining a capital budgeting project's desirability. What is the acceptance benchmark when using IRR?
Reform of reimbursement systems for healthcare services provided to ambulatory patients began in 1992. Spurred by effective curbs in the acute care setting, Congress authorized DHHS to design and implement reformed payment systems in many settings fo..
A 20-year U.S. Treasury bond with a face value of $10,000 pays a coupon of 5.25% (2.625% of face value every six months). The semiannually compounded interest rate is 5.0% (a six-month discount rate of 5.0/2 = 2.5%). What is the present value of the ..
Suppose that the price of a non-dividend-paying stock is $30, its volatility is 25%, and the risk-free rate for all maturities is 4% per annum. Use DerivaGem European binomial with 60 steps to calculate the cost of setting up the following positions...
When the level of working capital is increased, all of the following are expected to occur except
We buy a 10%, 20 year bond we expect to sell in 4 years at which time we prognosticate that the required rates will be 8% per annum. If the yield to maturity is 6% presently, what will the price the bond will be selling for now?
Camp Manufacturing currently has average inventories of 90 days and accounts receivable are typically collected in 60 days. Camp’s payables are paid 30 days after the invoice is received. The company has sales of $30,000,000. Using a 365 day year, Wh..
Given the following, compute the cost of internally generated equity (retained earnings) using the DCF approach: The par value of the firms outstanding 20 year 8% annual coupon debt is 1,000 and the debt currently has a market value of 800.
You are going to value Lauryn’s Doll Co. using the FCF model. After consulting various sources, you find that Lauryn has a reported equity beta of 1.5, a debt-to-equity ratio of .5, and a tax rate of 40 percent. Assume a risk-free rate of 5 percent a..
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