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Zoso is a rental car company that is trying to determine whether to add 28 cars to its fleet. The company fully depreciates all its rental cars over five years using the straight-line method. The new cars are expected to generate $150,000 per year in earnings before taxes and depreciation for five years. The company is entirely financed by equity and has a 32 percent tax rate. The required return on the company's unlevered equity is 13.5 percent, and the new fleet will not change the risk of the company.
What is the maximum price that the company should be willing to pay for the new fleet of cars if it remains an all-equity company?
Suppose the company can purchase the fleet of cars for $389,000. Additionally, assume the company can issue $244,000 of five-year, 6.4 percent debt to finance the project. All principal will be repaid in one balloon payment at the end of the fifth year. What is the adjusted present value (APV) of the project?
The present value of a payment of 60 at the end of 10 years and 40 at the end of 20 years is equal to 40. The present value of a perpetuity with payments of x at the end of each year is also 40.
Travel Excitement specializes in making travel reservations and promoting vacation travel. Wilderness Adventures has an aftertax cost of capital of 13 percent and Travel Excitement has an aftertax cost of capital of 11 percent.
Red Cat Firecrackers is considering whether to build a large or small factory to produce its firecrackers. Regardless of the production method, each bundle of firecrackers sells for $4.00.
If Stock X has an expected return of 15.35 percent and a beta of 1.55, and Stock Y has an expected return of 9.4 percent and a beta of 0.7, how much money will you invest in Stock Y
Your firm needs a computerized machine tool lathe which costs $48,000 and requires $11,800 in maintenance for each year of its 3-year life. After three years, this machine will be replaced.
A stock has a beta of 1.14, the expected return on the market is 10 percent, and the risk-free rate is 3.5 percent. What must the expected return on this stock be
The Trektronics store begins each month with 740 phasers in stock. This stock is depleted each month and reordered. The carrying cost per phaser is $26 per year and the fixed order cost is $340.
Stock B has expected return of 16% and standard deviation of 35%. Stock C has expected return of 12% and standard deviation of 22%. Their returns have correlation of 0.15.
What are mergers and acquisitions, why do companies merge and how can a merger occur
Conch Republic Electronics is a midsized electron- ics manufacturer located in Key West, Florida. The company president is Shelly Couts, who inherited the company.
Pete Corporation produces bags of peanuts. Its fixed cost is $17,280. Each bag sells for $2.99 with a unit cost of $1.55. What is Pete's breakeven point
The company currently sells 2,070 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,890 units per year.
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