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Calculate the NPV of a project given the following - and should the company accept or reject the project:
It is estimated that the project will deliver $25,000 operating profit each year for 12 years.
The firm can borrow as much as they like from their bank (which is being bailed out by the Federal Government - bless 'em) at 10%.
They have no retained earnings available - they are paying all their net profit out in dividends at $2.00 per share (I never said this was a well run company)
They can sell stock at $20.00 with a flotation cost of $4.00 per share. The stock's earnings/dividends are growing at 6%
They are in a 40% marginal tax bracket.
The Board of Directors has determined a target capital structure of 60% debt and 40% common equity. - they have no preferred stock.
The machine they are considering costs $160,000.
Describe the following project breakeven and profitability measures. Be sure to include each measure's economic interpretation.
Raya Mutual Fund of Kuala Lumpur has RM5 million to invest in certificates of deposit (CDs) for the next six months (180 days). If the Mumbai Bank CD is purchased and held to maturity, determine the net gain (loss) in Malaysian ringgit relative to CI..
Compute the ‘fair’ value of the two nearest to expiration futures contracts on the S&P500 Index (SPX) using SPX as the underlying asset. What interest rate and dividend yield did you use?
You are paying an effective annual rate of 15.33 percent on your credit card. The interest is compounded monthly. What is the annual percentage rate on this account?
Assume you are starting a new business involving the manufacture and sale of a new product. Raw materials costs are $45 per product. Direct labor costs are expected to be $32 per product. You expect to sell each product for $115.
Suppose you know that a company’s stock currently sells for $51 per share and the required return on the stock is 11 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it..
EZCUBE Corp. is 58% financed with long-term bonds and 42% with common equity. The debt securities have a beta of 0.23. The company’s equity beta is 1.17. What is EZCUBE’s asset beta?
What is net working capital? Why should it be considered an investment that a firm must make to increase its future profitability? What is the fundamental financing problem in international trade?
Consider the following projects, X and Y where the firm can only choose one. Project X costs $600 and has cash flows of $400 in each of the next 2 years. Project Y also costs $600, and generates cash flows of $500 and $275 for the next 2 years, respe..
What is the change in the NVP of a one-year project if fixed cost are increased from $400 to $600, the form is profitable, has a 35% tax rate, and employs a 12% coast of capital?
Davidson Corp has a $1000 par value bond outstanding paying annual interest of 6.5%. The bond matures in 25 years. If the present yield to maturity for this bond is 10%, calculate the current price of the bond. List i and n in your solution.
What is the maturity risk premium between the Treasury bill and the Xerox bond? What is the default risk premium on the Xerox bond?
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