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Evaluate the project given the following information: Assuming straight-line depreciation to zero, what is the IRR of this project? Initial investment = $160,000; requires an initial investment in NWC = $15,000 cost savings = $65,000 per year; life = 5 years; salvage value = $12,000 in year 5; tax rate = 38%; discount rate = 12%.
Magnetek Corp has just paid a dividend of $2 per share and you are now considering purchasing this stock. Analysts have estimated that Magnetek's dividend will grow at 4% per year in perpetuity. Given the riskiness of Magnetek stock, shareholders' re..
LaPorta, Lakonishok, Shleifer, and Vishny (“Good News for Value Stocks,” Journal of Finance, June 1997) study the returns on stocks on the few days surrounding their quarterly earnings announcements (relative to various expected return benchmarks). T..
What will $5,000 invested for 10 years at 8 percent compounded annually grow to? How many years will it take $400 to grow to $1,671 if it is invested at 10 percent compounded annually? At what rate would $1,000 have to be invested to grow to $4,046 i..
A basketball player has been offered a “$15 million contract”. He will be paid $1.5 million each year for 10 years beginning today. (A cash flow diagram is optional) What is the contract worth if the player’s opportunity cost of capital is 10%. How m..
Shinoda Corp. has 8.82 percent coupon bonds making annual payments with a YTM of 7.08 percent. The current yield on these bonds is 7.68 percent. How many years do these bonds have left until they mature?
The management of Erion Corporation is considering the purchase of an automated molding machine that would cost $280,534, would have a useful life of 5 years, and would have no terminal (salvage) value. The automated molding machine would result in c..
Weights used in calculating the WACC
The all equity firm (it has no debt and so pays no interest) has shareholders who require 10% return on their invested capital. All of the firm’s capital is tied up in operating activities. The firm’s ROIC = 16%. Earnings before tax is $100 and the f..
Suppose you know a company's stock currently sells for $70 per share and the required return on the stock is 16 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it's th..
Clancey Inc. issues $2,155,700 of 7% bonds due in 13 years with interest payable at year-end. The current market rate of interest for bonds of similar risk is 12%. What amount will Clancey receive when it issues the bonds?
What is expected return of a share of preferred stock if the current price is $50 and it pays an annual dividend of $5?
Country Risk Analysis. If the potential return is high enough, any degree of country risk can be tolerated. Do you agree with this statement? Why or why not? Do you think that a proper country risk analysis can replace a capital budgeting analysis of..
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