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A video rental store will cost $650,000 to open. Assuming annual sales of $1 million, variable costs of 35%, fixed costs of $300,000, depreciation of $100,000, and a tax rate of 35%, calculate the NPV of the project over a 10-year horizon (no inflation or salvage value assumed) with a 12% cost of capital. Conduct a sensitivity analysis by allowing investment, sales, variable costs, and fixed costs to vary by +10%, - 10% from their original estimates. Which variable appears to affect profitability the most?
How can options sell for more than their exercise value and whats wrong with using payback period? What should we use instead? Why?
Consider a 1-period binomial model with R=1.02, S0=100, u=1/d=1.05. Compute the value of a European call option on the stock with strike K=102. The stock does not pay dividends. Please submit your answer rounded to two decimal places.
Joe owns and operates Socccer Stores of America. He has $400000 of his own money in the business as equity capital, but because of the use of debt, the total value of his stores is $800000. Calculate the percentage of debt in the corporation, and the..
Sunburn Sunscreen has a zero coupon bond issue outstanding with a $25,000 face value that matures in one year. The current market value of the firm's assets is $27,200. What is the combined value of equity in the two existing companies? What is the c..
Your firm is considering an investment that will cost $920,000 today. The investment will produce cash flows of $450,000 in year 1, $270,000 in years 2 through 4 , and $200,000 in year 5. the discount rate that your firm uses for projects of this typ..
What factors did PepsiCo likely consider in deriving its required rate of return on the project in Brazil? Describe the uncertainty that surrounds the estimate of future cash flows from the perspective of the US parent.
You have just taken over as a fund manager at a brokerage firm. Your assistant, Thomas, is briefing you on the current portfolio and states "We have too much of our portfolio in Alpha. Even if the probabilities for different states of economy (expans..
A host of empirical evidence indicates that the gains from a typical merger accrue to the shareholders of the target corporation, not to the shareholders of the acquiring corporation. It seems the acquiring corporation should be in the "driver’s seat..
Your bank is asset sensitive, and management wants to protect against loss from interest rate changes. a. Would an interest rate cap or floor serve as a better hedge? Explain. b. Would a collar or reverse collar serve as a better hedge? Explain. c. W..
Prepare the business Income Statement for the period. Prepare the Statement of Changes in Equity for the period. Prepare the classified Balance Sheet at the end of the period.
You owe $2,000 on your credit card. The interest rate they offer is 19.6% interest compounded monthly. If you can only make the minimum monthly payment of $40 per month, how many years will it take for you to be debt-free?
The semi-strong form of the efficient market hypothesis states:
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