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A company is considering a 5-year project that opens a new product line and requires an initial outlay of $85,000. The assumed selling price is $97 per unit, and the variable cost is $63 per unit. Fixed costs not including depreciation are $20,000 per year. Assume depreciation is calculated using stright-line down to zero salvage value. If the required rate of return is 11% per year, what is the financial break-even point?
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.94 million. The fixed asset falls into the three-year MACRS class. If the tax rate is 34 percent, what is the project's Year 0 ne..
Union Brick Inc. (UBI) has a total market value of $200 million, consisting of 2 million shares of common stock selling for $50 per share and $100 million of 10 percent perpetual bonds currently selling at par. What is UBI's weighted average cost of ..
5 years ago you started making annual deposits of $362 into an account paying 7% annual return. You continue to make these deposits every year without fail. If you keep doing this every year for the next 5 years, how much money will you have in 5 yea..
A project has an initial cost of $63,700, expected net cash inflows of $11,000 per year for 11 years, and a cost of capital of 12%. What is the project's NPV? (Hint: Begin by constructing a time line.) Do not round your intermediate calculations. Rou..
The risk-free rate of return is 4.2 percent and the market risk premium is 11 percent. What is the expected rate of return on a stock with a beta of 1.8?
Valley Corporation is attempting to select the best of a group of independent projects competing for the firm's fixed capital budget of $4.5 million. The firm recognizes that any unused portion of this budget will earn less than its 15% cost of capit..
Dennis wants to determine if the discount rate really makes any difference in the net present value of a project. He feels that if a project is acceptable on one rate of return, it will be acceptable at all rates of return. To explain why his thinkin..
Next year's expected operating cash flow of a Norwegian-owned subsidiary in France is NOK 200 million. The exposure-elasticity of the operating cash flow is 2.00. The exchange rate is NOK 8.00/EUR and the subsidiary's cost of capital is 10%. What is ..
What are the principal benefits to BMW Bank of becoming aligned with BMW North America, its parent company? Describe how the bank will take advantage of the parent company's business activity.
Continue from previous Wacc estimation. In order to maintain present capital structure how much of the new investment must be financed by common equity? Assuming there is sufficient cash flow that can maintain its target capital structure without add..
Winston’s has 18,000 shares outstanding with a book value of $348,000 and a market value of $501,660 and has net income of $21,000. The firm is considering a project with a net present value of $4,500 that would require the purchase of $175,000 of fi..
What are the advantages and disadvantages of a voluntary workout to resolve financial distress? What are the advantages and disadvantages of declaring bankruptcy to resolve financial distress?
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