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Och, Inc., is considering a project that will result in initial aftertax cash savings of $1.90 million at the end of the first year, and these savings will grow at a rate of 1 percent per year indefinitely. The firm has a target debt–equity ratio of .75, a cost of equity of 13.0 percent, and an aftertax cost of debt of 5.8 percent. The cost-saving proposal is somewhat riskier than the usual projects the firm undertakes; management uses the subjective approach and applies an adjustment factor of +2 per cent to the cost of capital for such risky projects.
What is the maximum initial cost of company would be willing to pay for the project?
Andrea purchased 200 shares of stock for $45 per share. During the year, she received dividend checks amounting to $180. Andrea recently sold the stock for $54 per share. What was Andrea's return on the stock? Andrea is in a 25 percent tax bracket. W..
Given the increasing longevity of Americans and the costs of providing long-term care, anticipation of the costs should be a major element of every family’s financial planning. Current information suggests however, that very few families or individua..
A company is using the Profitability Index (PI) when evaluating projects. You have to find the PI for the company's project, assuming the company's cost of capital is 9.5%. The initial outlay for the project is $379,000. The project will produce the ..
Construct a spreadsheet to replicate the analysis of the table. Click here to view the table. That is, assume that $10,000 is invested in a single asset that returns 7 percent annually for twenty-five years and $2,000 is placed in five different inve..
A company has net income of $183,000, a profit margin of 7.7 percent, and an accounts receivable balance of $122,370. Assuming 80 percent of sales are on credit, what are the company’s day’s sales in receivables?
Romo Enterprises needs someone to supply it with 121,000 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 $880,000 to install the equipment nec..
Given the returns and probabilities for the three possible states listed here, calculate the covariance between the returns of Stock A and Stock B. For convenience, assume that the expected returns of Stock A and Stock B are 0.10 and 0.19, respective..
The Zecor Company has warrants outstanding with an exercise price of $45. The warrants have a market price of $21. Zecor's common stock is currently selling at $52 per share. How many shares of stock can be purchased with this warrant? Show work.
A bank borrows money at the 5 year CD rate found in the WSJ with daily compounding. It loans money at the 15 year mortgage rate in the paper which is compounded monthly. Calculate the net interest margin (the difference in the effective rate on the 1..
How does an IPO differ from a Seasoned Equity Offering? When the underwriters are acting under a firm commitment, what services do they provide for the private company attempting their IPO? How are the underwriters compensated for such services?
Kolby’s Korndogs is looking at a new sausage system with an installed cost of $882,000. This cost will be depreciated straight-line to zero over the project’s seven-year life, at the end of which the sausage system can be scrapped for $97,000. The sa..
The market consensus is that Analog Electronic Corporation has an ROE = 11% and a beta of 1.90. It plans to maintain indefinitely its traditional plowback ratio of 1/5. This year's earnings were $2.9 per share. The annual dividend was just paid. The ..
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