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Flemish Corp. is looking to invest in a new project that requires an initial investment of $100,000 in equipment. This equipment falls in the 3-year MACRS class for depreciation purposes. In addition to the initial investment, Flemish expects an initial increase in its net working capital of $5,000 and annually recurring net working capital need of $900, which will all be recovered at the end of the project. The project is expected to generate incremental net revenues of $150,000 per year, but it will also impose a cannibalization cost on expertise used in another project to the tune of $15,000. These revenues are net of all costs except depreciation, interest, and taxes. The firm expects to sell the project at the end of two years at a salvage value of $25,000. The cost of capital for the project is 12%, and the tax rate for the firm is 40%. Should Flemish invest in the project?
In each of the following cases, find the unknown variable: (Do not round intermediate calculations. Round your answers to the nearest whole number, e.g., 32.) Accounting Break-Even Unit Price Unit Variable Cost Fixed Costs Depreciation 27,500 $ 32 $ ..
The internal rate of return (IRR) is __________.
Explain how it is possible for a firm to report rising NI each year yet continue to need more working capital financing from a bank.
A conditional sale contract requires two payments three and six months after the date of the contract. Each payment consists of $1,890 principal plus interest at 12.5% on $1,890 from the date of the contract. One month into the contract, what price w..
Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no Tran’s fats. The firm expects that sales of the new pizza will be $18 million per year. Assume customers ..
Consider two stocks. If all their characteristics remain the same except for the correlation coefficient, which value of the correlation would make a portfolio of these two stocks the least risky?
A company is producing new headphones, but 1st management wants to determine its degree of operating leverage. The company has a base level of sales of 477,810 units. Sales price unit is $137.75 and variable cost per unit is $94.08. Total annual oper..
Consider the following point and counter-point arguments. Which argument to you support? Explain why and offer your own opinion on the issue. Country risk does not matter for U.S. projects. U.S.-based MNCs should consider country risk for foreign pr..
Bennington Industrial Machines issued 142,000 zero coupon bonds seven years ago. The bonds originally had 30 years to maturity with a yield to maturity of 7.2 percent. If the company has a $45.7 million market value of equity, what weight should it u..
An improvement to the roadway is desired from Philmont Scout Ranch to Springer in northeastern New Mexico. Alternative N (for north) costs $2, 400,000 initially and $ 155,000/year thereafter. The salvage values (regard salvage value as negative term ..
Jim worked for AAA Job Shop, Inc. for over 30 years. Two months before Jim retired, the head of human resources told Jim that the company would pay for health insurance for Jim and his wife for the remainder of his life, and for his wife’s life if sh..
Which one of the following will decrease the after tax cost of debt for a firm?
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