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McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $740 per set and have a variable cost of $410 per set. The company has spent $189,000 for a marketing study that determined the company will sell 38,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 8,000 sets of its high-priced clubs. The high-priced clubs sell at $1,290 and have variable costs of $720. The company will also increase sales of its cheap clubs by 8,000 sets. The cheap clubs sell for $480 and have variable costs of $120 per set. The fixed costs each year will be $7,560,000. The company has also spent $983,000 on research and development for the new clubs. The plant and equipment required will cost $21,000,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $914,000 that will be returned at the end of the project. The tax rate is 34 percent, and the cost of capital is 14 percent. Suppose you feel that the values are accurate to within only ±6 percent. The best-case NPV is $ and worst-case NPV is $. (Do not include the dollar signs ($). Negative amount should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16)) (Hint: The price and variable costs for the two existing sets of clubs are known with certainty; only the sales gained or lost are uncertain.)
ABC Co. is considering the purchase of a new machine. The purchase price is $20,000. Shipping is $1,250 and installation is $2,750. The machine will require new inventory of $3,000 of which 70% will be on credit. The Initial investment is ___ and the..
We have seen that over long periods of time, stock investments have tended to substantially outperform bond investments. However, it is not at all uncommon to observe investors with long horizons holding entirely bonds. Are such investors irrational?..
Lohn Corporation is expected to pay the following dividends over the next four years: $13, $9, $6, and $2.75. Afterward, the company pledges to maintain a constant 5 percent growth rate in dividends forever. If the required return on the stock is 12 ..
You bought a 7 percent coupon bond one year ago for $1,080.50. These bonds make annual payments and mature six years from now. Suppose you decide to sell your bond today when the required rate of return on the bond is 5.5%.If the inflation rate was 3..
In order to acquire the data necessary for further safety analyses, the system safety team has requested that a series of test be run on a brass bushing to be run without lubrication until it seizes (failure). The times to seizure for the sample set ..
Today, the stock price of VALE S.A. (based in Brazil) is priced at BRL 13 per share. The spot rate of the Brazilian Real (BRL) is $.25. During the next year, you expect that the stock price of Vale to Increase by 10%. You also expect that the BRL wil..
The securities act of 1933 is primarily concerned with.
The Firm, Inc. has 8.6% coupon bonds on the market with eight years to maturity. The bonds make semi-annual payments and currently sell for 107.4 percent of par. What is the current yield on the bonds?
What is meant by the “translation” of foreign currency financial statements? What is the cause of balance sheet exposure? What is the primary difference between transaction exposure and accounting exposure? When would the balance sheet exposure arisi..
Valuation – options. The following information refers to a six-month call option on the stock of XYZ, Inc. What is the intrinsic value of the option? What is the option’s time premium at this price?
Suppose that everything stays the same as was presented in the original problem (for example, the costs each year, the value of the hotel under the two scenarios, and the probability of the city being awarded the franchise) except for two things: Usi..
What is the required return for Dentrix Corporation? The risk-free rate is 2.6%, the risk premium is 7.3, the expected rate of inflation is 3.4% and the company can currently issue bonds at a YTM of 4.9%. All returns here are expressed as decimals, n..
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