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KADS, Inc., has spent $340,000 on research to develop a new computer game. The firm is planning to spend $140,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $44,000. The machine has an expected life of three years, a $69,000 estimated resale value, and falls under the MACRS 7-year class life. Revenue from the new game is expected to be $540,000 per year, with costs of $190,000 per year. The firm has a tax rate of 40 percent, an opportunity cost of capital of 11 percent, and it expects net working capital to increase by $70,000 at the beginning of the project. What will the cash flows for this project be?
Thomas Brothers is expected to pay a $2.4 per share dividend at the end of the year (that is, D1 = $2.4). The dividend is expected to grow at a constant rate of 4% a year. The required rate of return on the stock, rs, is 16%. What is the stock's curr..
Consider a 10-year, $1000 coupon bond, redeemable at par, and assume that the coupon is paid continuously with an annual coupon rate of 5%. The bond is said to be callable, if the borrower (the issuer) can redeem the bond at a time prior to the matur..
Assume that next year, we can have three possible states of world with the following probabilities of occurring: 20%, 45%, and 35%. The returns of an asset in each state are 18%, 5%, and -8%. What is the expected return for this asset?
A firm plans to purchase a $50,000 asset that will be depreciated straight-line over a 5-year life to a zero salvage value. What is the present value of the resulting benefit from depreciation (the depreciation “tax shield”) if the tax rate is 35% an..
The price of a stock is $36 and the price of a three-month call option on the stock with a $36 strike is $3.60. Suppose a trader has $3,600 to invest and is trying to choose between buying 1,000 options (10 contracts) or 100 shares of stock. How high..
What are the three most common forms of business organizations in the United States? What are the three basic types of agency relationships? What is the BMW v. Gore test and how is it used?
A perpetuity is to pay $500 on the first of each month from January through September, inclusive. No payments will be made in October, November, or December. This pattern of payments is to continue forever. Assuming the monthly effective interest rat..
The building is to be constructed on land leased for $21,000 per year Net working capital must be increased by $100,000 Annual revenues from the new branch will be $400,000 Of this $400,000 in revenues, $55,000 will be drawn away from the bank’s main..
Kerry and Rob just had their first child, Helene. Being financially responsible parents, they want to start saving for Helene's college education so that they will have $355,000 by the time she is 18. Assuming that they have $10,000 in a bank account..
Given your profit and loss projection from last week, do you anticipate needing to borrow money for any reason? Keep in mind the seasonality of your company. You might make a lot of money in the winter, and have essentially no business in the summer ..
Tom is considering the purchase of Red Lobster Inc. bonds that were issued 4 years ago. When the bonds were originally sold, they had a 25-year maturity and a 6.54% coupon interest rate paid annually. What is the yield to maturity on the bonds if you..
Also, a _______-weighted index is "distorted" in that it is influenced equally by both large and small firms whereas a ______-weighted index is "distorted" in that it is influenced more by firms with relativity greater total market capitalizations.
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