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To solve the bid price problem presented in the text, we set the project NPV equal to zero and found the required price using the definition of OCF. Thus the bid price represents a financial break-even level for the project. This type of analysis can be extended to many other types of problems. Dahlia Enterprises needs someone to supply it with 112,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It will cost you $790,000 to install the equipment necessary to start production; you’ll depreciate this cost straight-line to zero over the project’s life. You estimate that, in five years, this equipment can be salvaged for $62,000. Your fixed production costs will be $317,000 per year, and your variable production costs should be $9.50 per carton. You also need an initial investment in net working capital of $67,000. Assume your tax rate is 35 percent and you require a 12 percent return on your investment. a. Assuming that the price per carton is $16.20, what is the NPV of this project? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) NPV $ b. Assuming that the price per carton is $16.20, find the quantity of cartons per year you need to supply to break even. (Do not round intermediate calculations and round your final answer to nearest whole number.) Quantity of cartons c. Assuming that the price per carton is $16.20, find the highest level of fixed costs you could afford each year and still break even. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Fixed costs $
The total return on a stock is equal to: the annual dividend divided by the current stock price. the difference between the capital gains yield and the dividend yield. the capital gains yield plus the dividend yield. (1 + Dividend yield) × (1 + Infla..
Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 26 percent for the next three years, with the growth rate falling off to a constant 6 percent thereafter. If the required return is 12 percent, and the company just paid a di..
Suppose that a U.S. Treasury note maturing June 15, 1995 is purchased with a settlement date of February 17, 1994. The coupon rate is 4.125% and the par value is $100,000. The next coupon date is June 15, 1994. What is the full (dirty) price of this ..
How close could you get to a risk free investment with stocks? Are stocks inherently risky, so that a risk free return would not be possible?
The exchange rates in New York for $1 are C$1.2795 and £0.6635. A dealer is offering the following quote: C$1 will buy £0.8414. What is the profit you can earn on $24,341 using triangle arbitrage?
"The world is at your fingertips! Why do businesses go global?" Please respond to the following: Give two (2) reasons explaining why you think organizations have an advantage going global now as compared to twenty years ago. Explain whether or not yo..
XYZ currently has 21 long-term bond issues outstanding with various times-to-maturity and coupon rates. One of these bonds matures on May 1, 2031, approximately 15 years from today. It has a yield to maturity of 4.8%. For simplicity, assume that coup..
Explain the various advantages and disadvantages of using core deposits versus borrowings for both liquidity needs and as a long-term funding source. What is the relationship between the two?
A stock has an expected return of 14.8 percent, the risk-free rate is 5.8 percent, and the market risk premium is 7.5 percent. What must the beta of this stock be?
Your uncle has $300,000 invested at 7.5%, and he now wants to retire. He wants to withdraw $35,000 at the end of each year, beginning at the end of this year. He also wants to have $25,000 left to give you when he ceases to withdraw funds from the ac..
Your CEO comes to you armed with the latest earnings results of a major competitor. What message might you provide to your CEO and what type of bias may he be reflecting?
ABC is expected to pay a $2.25 dividend next year, and this dividend is expected to grow at a 3% annual rate forever. If the required return is 8%, what is the value of this stock today?
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