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1. Schweser Satellites Corporation manufactures satellite earth stations that sell for $100,000 each. The company's fixed costs, F, are $2 million; 50 earth stations are produced and sold every year; profits total $500,000; and the firm's assets (all equity financed) are $5 million. The firm estimates that it can change its production process, adding $4 million to investment and $500,000 to fixed operating costs. This change will (1) reduce variable costs per unit by $10,000 and (2) increase output by 20 units, but (3) the sales price on all units will have to be lowered to $95,000, to permit sales of the additional output. The firm has tax loss carry-forwards that cause its tax rate to be zero, its cost of equity is 15 percent, and it uses not debt.
a. Should the firm make the change?b. Would the firm's operating leverage increase or decrease if it made the change? What about its breakeven point?c. Would the new situation expose the firm to more or less business risk than the old one?
What is an opportunity cost rate, is it used in the discounted cash flow analysis.
The lottery is $60,000,000 and the state offers to pay you $3,000,000 per year for the next twenty years, or you can take the lump sum today of $29,500,000.
Barone's Repair Corporation was started on May 1st A summary of May transactions is presented below. make a tabular analysis of the transactions, using the following column headings: Supplies, Equipment, Accounts Payable,
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Sam's Corporation expects to pay a dividend of $6 per share at the end of year one, $9 per share at the end of year two, and then be sold for $136 per share at the end of year two.
What external factors affect the optimal capital structure? What is the benefit of being at the optimal capital structure?
Winder Corporation is a specialty component manufacturer with idle capacity. Management would like to use its extra capacity to generate additional profits
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The Kummins Engone Corporation common stock has a beta of 0.9. The current risk-free rate of return is 5% and the market risk premium is 8%.
Suppose a Company is planning a purchase of equipment for $20,000. The equipment is expected to generate net cash inflows of $6,250 for the next five years.
Computation of the accounting break-even level of output and where the required return on the project is 15 percent
Explain Selection of a machine through NPV and How much would Allen Company be willing to pay for machine B if the machine promises annual cash inflows
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