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The Thomas Co. is analyzing a proposed expansion project. Currently, the company owns 15 acres of land, which it purchased for $6 million 5 years ago. The land is currently valued at $7.2 million and is totally debt-free. The company wants to build a new distribution center at a cost of $19 million dollars, which will be depreciated on a straight-line basis over 30 years. An additional $500 thousand is required for developmental design plans and consulting fees. The center will require an increase in current assets of $2 million during the project life of 20 years. Management has estimated that the facility will increase the firm’s earnings before taxes by $2.5 million a year. After 20 years, the company plans to sell the facility, including the land, for an estimated $15 million. The company has 50,000 shares of common stock outstanding at a market price of $46 a share. This stock just paid an annual dividend of $2.80 a share. The dividend is expected to increase by 4 percent annually. They also have 10,000 shares of 5 percent preferred stock with a market value of $51 a share. The company has a 8 percent, semiannual coupon bond issue outstanding with a total face value of $1.5 million. The bonds are currently priced at 101 percent of face value and mature in 11 years. The tax rate is 35 percent. Should the Thomas Co. pursue the expansion at this point in time? Why or why not?
Assume that your father is now 50 years old, that he plans to retire in 10 years, and that he expects to live for 25 years after he retires - that is, until he is 85. He wants his first retirement payment to have the same purchasing power at the time..
Dexter Mills issued 25-year bonds two year ago at a coupon rate of 10 percent. The bonds make semi annual payments. The nominal annual yield-to-maturity on these bonds is 9 percent. What is the current bond price?
A project has the following estimated data: price = $54 per unit; variable costs = $29.16 per unit; fixed costs = $6,100; required return = 16 percent; initial investment = $13,000; life = three years. Ignoring the effect of taxes, the accounting bre..
CALCULATING PROJECT FCF In the spring of 2015, Jemison Electric was consider-ing an investment in a new distribution center. calculate the project’s annual project free cash flows (FCFs) for each of the next five years where the salvage value of oper..
Mortgage is categorized as loan between home buyers (borowers) and lenders (banks) directly. Does your categorization of lending decision change when you consider the mortgage that is sold off to investors?
Financial management provides a framework for pursuing synergy between the functional responsibilities and financial resources of the business organisation.
A firm currently has equity with a market value of $600,000,000 and debt with a market value of $500,000,000. The firm has 10,000,000 shares outstanding. The bonds offer investors a return of 8%. The firm is contemplating issuing $300,000,000 in new ..
The Down and Out Co. just issued a dividend of $2.46 per share on its common stock. The company is expected to maintain a constant 4 percent growth rate in its dividends indefinitely. If the stock sells for $30 a share, what is the company's cost of ..
What is the expected return on the market and What is the risk-free rate?
Under the payback method, which of the following would be concluded?
Consider bidding for a project to supply 80 million postage stamps per year to USPS for the next 5 years. You have an idle parcel of land available at that cost $1 million 5 years ago, if the land was sold today, it would net you $1.2 million after t..
A project has a discount rate of 14 percent, an initial cost of $99,200, an inflow of $56,400 in year 1 and an inflow of $75,900 in year 2. Your boss requires that every project return a minimum of $1.06 for every $1 invested. Based on this informati..
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