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We are evaluating a project that costs $864,000. Has an eight-year life and has no salvage value. Assume that depreciation is straight line to zero over the life of the project. Sales are projected at 71,000 units per year. Price per unit is $49, a variable cost per unit is $33, and fixed costs are $765,000 per year. The tax rate is 35 percent, and we require a return of 10 percent on project.
Calculate the accounting break-even point
Calculate the base case cash flow and NPV. What is the sensitivity of NPV to changes in the sales figure?
What is the sensitivity of OCF to changes in the variable cost figure? Explain what your answer tells you about a $1 decrease in estimated variable costs.
In the previous problem. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within + 10 percent. Calculate the best case and worst-case NPV figures.
Which one of these represents the difference between a nominal rate and a real rate as they relate to project analysis?
As an equity analyst you are concerned with what will happen to the required return to Universal Toddler Industries stock as market conditions change. Suppose rRF=5% rM =12% and bUTI = 14. Under the current conditions what is rUTI, the required rate ..
The Generic Publications Textbook Company sells all of its books for $100 per book, and it currently costs $50 in variable costs to produce each text. The fixed costs, which include depreciation and amortization for the firm, are currently $2 million..
Firm K’s shares sell today for $45. It is forecast that the share price will be $51 at the end of one year. Also at that time a dividend of $2.50 is expected to be paid. Firm K’s β is 0.87, the riskless return is 3 % and the market risk premium is 7 ..
You are considering a project with the following data: IRR = 8.7 percent; PI = .98; NPV = -$393; Payback period = 2.44 years. Which one of the following statements is correct given this information?
What are the advantages Blades could gain from importing from and/or exporting to a foreign country such as Thailand and what are some of the disadvantages Blades could face as a result of foreign trade in the short run? In the long run?
Describe the characteristics of the ladder investment strategy and compare them to the barbell investment strategy. Why should the barbell strategy outperform the ladder strategy in a stable or declining interest rate environment? Why should the ladd..
Describe key differences in the balance sheets and income statements of each of the following firms versus one of the banks introduced. a. Goldman Sachs Bank versus PNC Bank b. MO Bank versus Community Bank c. BMW Bank versus Community Bank
Suppose that a mining operation has spent $8 million developing an ore deposit in South America. Current expectations are that the deposit will require 2 years of development and will result in a realizable cash flow of $10 million at that time. ompu..
Investment and Loan Planning. The employee credit union at State University is planning the usage of funds for the coming year. The credit union makes four types of loans to its members. In addition, it invests in “risk-free” securities in order to s..
Given the following parameters use put-call parity to determine the price of a put option with the same exercise price.
Cheeseburger and Taco Company purchases 18,669 boxes of cheese each year. It costs $15 to place and ship each order and $4.28 per year for each box held as inventory. The company is using Economic Order Quantity model in placing the orders. What is t..
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