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Suppose a firm is considering a labor-saving investment. In year 0, the project requires an $11,700 investment in equipment (all figures are in thousands of dollars). This investment is depreciated using the straight-line method over five years and there is salvage value in year 5 of $4,500. With or without the cost-reducing investment, all cash flows start in year 1 and end in year 5. The inflation rate is 2.6% in year 1 and declines to 1.4% in year 5; the real growth rate is 21.3% in year 2 and declines to 9.5% in year 5 (assume both fall in a straight-line fashion). The tax rate is 41.0% in all years. The cost of capital is 15%. Without the cost-reducing investment, the firm's existing investments will generate year 1 revenue, labor costs, other cash expenses, and depreciation of $15,200, $4,100, $5,300, and $3,300, respectively. With the cost-reducing investment, the firm's year 1 labor costs will be $1,600 and revenues and other cash expenses will remain the same. What is the cost-reducing project NPV and IRR? Should the firm undertake the project? Please, it needs to be an excel.
A call option on an asset has a delta of 0.3. A trader has sold 3,000 options and wants to create a delta-neutral position. Should the trader take a long or short position in the asset? How many units of the asset should be bought or sold?
Company X wants to acquire another similar company. It estimates that net cash flows for the acquired company will be $8,500,000 per year for 10 years. The cost is $50,000,000. The company's cost of capital is 10 percent. Should the company go ahead ..
Which of the following does maximizing shareholder wealth not usually account for?
The Great Giant Corp. has a management contract with its newly hired president. The contract requires a lump sum payment of $25,400,000 be paid to the president upon the completion of her first 8 years of service. The company wants to set aside an eq..
Given are the following data for Golf Corporation: Market price/share = $12; Book value/share = $10; Number of shares outstanding = 100 million; Market price/bond = $800; Face value/bond = $1,000; Number of bonds outstanding = 1 million. Calculate th..
If 8% is a reasonable discount rate, which option is less costly. - What discount rate would cause the two alternatives to have the same cost in present value terms.
You are connsidering purchasing a new software suite for your consulting company. You estimate that the software will have a useful life of 5 years, with negligible market value at that point. what would be the maximum amount that you should spend on..
Your division is considering two investment projects, each of which requires an up-front expenditure of $2,266,000.00. You estimate that the investments will produce the following net cash flows: Year Project A 1 $5,250,000 2 10,640,000 3 20,990,000 ..
This is my weekly homework Problem: a) What is the Eurodollar creation from a deposit of $2 million when the offshore banks maintain a 5 percent reserve? Assume that the 2 million is deposited in a London office of Barclays Bank, which makes a loan t..
What is the expected return on a portfolio that will decline in value by 13% in a recession, will increase by 16% in normal times, and will increase by 23% during boom times if each scenario has equal likelihood? A. 8.67% B. 13.00% C. 13.43% D. 17.33..
Titan Mining Corporation has 16.28 million shares of common stock outstanding and 220,000 7.5 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $33 per share and has a beta of 1.25, and the bonds have 1..
The six-month zero rate is 8% with semiannual compounding. The price of a one-year bond that provides a coupon of 6% per annum semiannually is 97. What is the one-year continuously compounded zero rate? A portfolio is worth $24,000,000. The futures p..
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