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Consider a project to supply 70 million postage stamps to the U.S. Postal Service for the next five years. You have an idle parcel of land available that cost $380,000 five years ago; if the land were sold today, it would net you $330,000, aftertax. You estimate the land can be sold for $500,000 after taxes in five years. You will need to install $2,185,000 in new manufacturing plant and equipment to actually produce the stamps; this plant and equipment will be depreciated straight-line to zero over the project's five-year life. The equipment can be sold for $1,748,000 at the end of the project. You will also need $35,000 in initial net working capital for the project, and an additional investment of $33,000 in every year thereafter. All net working capital will be recovered when the project ends. Your production costs are .28 cents per stamp, and you have fixed costs of $560,000 per year. Your tax rate is 35 percent and your required return on this project is 14 percent. What bid price per stamp should you submit?
The preferred stock of Gator Industries sells for $35.85 and pays $2.71 per year in dividends. What is the cost of preferred stock financing? What are the floatation costs for issuing the preferred shares and how should this cost be incorporated into..
Fly Away, Inc., has balance sheet equity of $6.4 million. At the same time, the income statement shows net income of $992,000. The company paid dividends of $510,880 and has 200,000 shares of stock outstanding. If the benchmark PE ratio is 28, what i..
Take Time Corporation will pay a dividend of $4.40 per share next year. The company pledges to increase its dividend by 5.75 percent per year, indefinitely. If you require a return of 10 percent on your investment, how much will you pay for the compa..
Return on investment (ROI) can be measured on either a dollar basis or a rate of return basis. Which of the following statements about ROI is false? A. Net present value (NPV) is a dollar return measure. B. Internal rate of return (IRR) is a rate of ..
Sea Side, Inc., just paid a dividend of $2.16 per share on its stock. The growth rate in dividends is expected to be a constant 5.8 percent per year indefinitely. Investors require a return of 18 percent on the stock for the first three years, then a..
Toyota has an expected return of 21%, and a variance of 0.014. Honda has an expected return of 19%, and a variance of 0.009. The covariance between Toyota and Honda is 0.05. Using these data, calculate the variance of a portfolio consisting of 50% To..
Kennebunk Manufacturing is expected to pay a dividend of $8 per share next year. The dividend growth rate is expected to continue to be 3%. Required rate of return is 7%. What should be the current market price per share?
Think about the non-tax-related differences between share repurchases and dividends. - Describe the firms in which each difference would be relatively more important.
What are the reasons for regulating financial institutions? What is the process of asset transformation performed by a financial institution? Why does this process often lead to the creation of interest rate risk? What is interest rate risk?
Fama’s Llamas has a weighted average cost of capital of 9.3 percent. The company’s cost of equity is 13 percent, and its pretax cost of debt is 7.3 percent. The tax rate is 40 percent. What is the company's debt-equity ratio?
Consider the following project which costs $1,000,000 with a salvage value of $50,000 in 5 years. The project will produce a new type of running shoes which will be sold for $235 and have variable costs of $95 per pair. The company has fixed costs of..
Discuss the ethics of HMOs rewarding physicians for keeping utilization costs down.- Does Vera have any options?
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