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You are evaluating a project for The Tiff-any golf club, guaranteed to correct that nasty slice. You estimate the sales price of The Tiff-any to be $500 per unit and sales volume to be 1,000 units in year 1; 900 units in year 2; and 1,325 units in year 3. The project has a 3-year life. Variable costs amount to $275 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $195,000 in assets, which will be depreciated straight-line to zero over the 3-year project life. The actual market value of these assets at the end of year 3 is expected to be $45,000. NWC requirements at the beginning of each year will be approximately 25 percent of the projected sales during the coming year. The tax rate is 35 percent and the required return on the project is 11 percent. What is the operating cash flow for the project in year 2? Operating cash flow $
Which of the following options provides the most information about a project’s riskiness?
Property, Inc’s stock pays $4.25 dividends per share and it is expected to pay the same amount indefinitely. The stock is currently selling for $59. What is the required rate of return on the stock?
A stock has returns of 18 percent, 15 percent, -21 percent, and 6 percent for the past four years. Based on this information, what is the 95 percent probability range of returns for any one given year?
4Gifts Galore Inc. borrowed $1.5 million from National City Bank. The loan was made at a simple annual interest rate of 9% a year for 3 months. A 20% compensating balance requirement raised the effective interest rate. The nominal annual rate on the ..
ProCor, a biotech firm, forecasted the following growth rates for the next three years: 35 percent, 28 percent, and 22 percent. The company then expects to grow at a constant rate of 9 percent forever. The company paid a dividend of $1.54 last week. ..
Suppose that you have a bond that is currently trading for 1,234.56, has a time-to-maturity of 14 years, pays semi-annual coupon payments of $35.50, and a face value of $1,000. Also, suppose that the bond was purchased 90 days after its last, semi-an..
Northern Corporation has just paid a dividend of $1.45 per share on its common stock. The annual dividend is expected to increase by 2%, 3%, and 4% respectively over the next three years and then by 5% per year thereafter. If the opportunity cost is ..
Mathias has been the sole proprietor of a clothing store for many years. He intends to retire after holding a "liquidation sale". He wants to avoid ordinary income from the sale of the business inventory, so he shuts down the store for one month and ..
The Sarbanes-Oxley Act of 2002 enhanced corporate governance and accountability and stated implications for non-compliance of public companies. Name the six items of improved corporate governance. What is meant by the “Chutzpah Defense”? Is this type..
Which term applies to the purchase or sale of an underlying asset via an option contract?
When you retire you will initially require an annual income of 125,000 per year. You anticipate living for 25 years during retirement with an 8% investment return. How much do you need in your pension plans to cover this need? How much will you have ..
Eagle Products’ EBIT is $480, its tax rate is 40%, depreciation is $24, capital expenditures are $64, and the planned increase in net working capital is $30. What is the free cash flow to the firm?
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