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Your firm is considering a proposed project which lasts 3 years and has an initial investment of 200,000. The after-tax operating cash flows (OCFs) are estimated at $60,000 for year 1, $120,000 for year 2, and $135,000 for year 3. The firm has a target debt/equity ratio of 1.2. The firm's cost of equity its 14% and it cost of debt is 9%. The tax rate is 34%, please answer the following: a. Calculate the Net Present Value. Should the firm accept the project? b. Calculate the Profitability Index (CFin/CF out). Should the firm accept the project? c. Calculate the payback method. Should the firm accept the project? d. Does the firm's debt-to-equity impact on the outcome of your decision? Why?
A local bank is running the following advertisement in the newspaper. “For just $3,000 we will pay you $270 forever!” The fine print in the ad says that or a $3,000 deposit, the bank will pay $270 every year in perpetuity, starting one year after the..
Interest earning of 6 percent with a $500 minimum balance; average monthly balance, $600; monthly services charge of $15 for falling below the minimum balance, which occurs three times a year (no interest earned in these months.)
The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape guitar sides. The steamer, purchased just 2 years ago, is being depreciated on a straight-line basis and has 6 years of remaining life. Its curren..
What is your approximate real rate of return on this investment?
A common stock is held for two years, during which time it receives an annual dividend of $10. The stock was sold for $100 and generated an average annual return of 16%. What price was paid for the stock?
Walther's financial analysts have estimated the marginal, after-tax cost of debt, preferred stock, and common equity to be 9 percent, and 18 percent, respectively. What is the weighted marginal cost of capital for Walther?
A Company has a bond outstanding with a face value of $10000 that reaches maturity in 10 years. The bond certificate indicates that the stated coupon rate for this bond is 0.08% and that the coupon payments are to be made semiannually. Assuming the a..
A stock is expected to pay a dividend of $1.75 the end of the year (that is, D1 = $1.75), and it should continue to grow at a constant rate of 10% a year. If its required return is 14%, what is the stock's expected price 4 years from today? Round you..
A bond with a coupon rate of 4% making annual payments is being offered with a YTM of 5%. If the bond has 12 years until it matures, what is the current yield of the bond? (Express your answer as a percentage. example: 3.45)
Lorre, Inc., recently issued new securities to finance a new TV show. The project cost $13.1 million, and the company paid $635,000 in flotation costs. In addition, the equity issued had a flotation cost of 6.1 percent of the amount raised, whereas t..
Bells manufacturing estimates that the sales for the 2016 financial year will be $2.25 million. No new borrowing was obtained and, therefore, the interest expense remained unchanged at $24,500. Compile the pro forma income statement for the year ende..
Suppose you and most other investors expect the inflation rate to be 8% next year, to fall to 4% during the following year, and then to remain at a rate of 3% thereafter. Furthermore, maturity risk premiums increase 0.2 percentage points for each yea..
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