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Your company has been doing well, reaching $1 million in annual earnings, and is considering launching a new product. Designing the new product has already cost $500,000. The company estimates that it will sell 800,000 units per year for $3 per unit with fixed costs of $300,000 per year and variable costs of $2 per unit. Production will end after year 5. New equipment costing $2 million will be required. The equipment will be depreciated using the 7-year MACRS schedule. You expect to be able to sell the equipment for $200,000 at the end of year 5. Your current level of working capital is $300,000. The new product will require the working capital to increase to a level of $380,000 immediately. Then working capital requirements will be $400,000 in year 1, $420,000 in year 2, $450,000 in year 3, $390,000 in year 4, and finally returning to $300,000 at then end of the project. Your tax rate is 35%. The discount rate for this project is 10%. Do the capital budgeting analysis for this project and calculate its NPV and IRR.
You will document your understanding and learning relative to the course requirements as summarized in the course description. This must include how you will or could use the learning in your personal and/or professional decision making.
A 6.10 percent coupon bond with ten years left to maturity is priced to offer a 7.2 percent yield to maturity. You believe that in one year (aka 9), the yield to maturity will be 7.0 percent. What is the change in price the bond will experience in do..
His recently departed dear Aunt Annie, may she rest in peace, has left Tom a 6-year annuity paying $4,500 per year. He will receive the first payment 4 years from today. If he is discounting at 7% (EAR), what is the present value of his inheritance?
find two scholarly reports that discuss IBM's financial performance during this period and discuss how those professional reports correlate with what you found in your analysis.
The Brown Company sells small office equipment and fixtures on credit. Their ending balance in Accounts Receivable for 2012 was $120,000. What is the difference between an account receivable and a note receivable? Give an example of each.
Explain how the Two-Stage Free Cash Flow to the Firm valuation method can be used to calculate firm value.
Assume Black-Scholes: The continuously compounded risk-free interest rate is equal to the rate of dividend continuously being paid out by the stock. Determine the volatility of the stock
Determine the value of an interest rate call option at the maturity of a loan if the call has a strike of 12 percent, a face value of $50 million, the loan matures 90 days after the call is exercised, the call expires in 60 days, the call premium is ..
Suppose you need $20,000 to buy a new car in 5 years. Assume that you use an account earning 10% per annum. What do you have to deposit today, assuming quarterly compounding
An institutional investor speculates the rise of interest rate in twelve months time. It therefore enters today with a local bank a twelve-month forward rate agreement to borrow Eurodollar for six months at 1.96% at contract expiration, with a notion..
A purely competitive firm finds that the market price for its product is $30.00. It has a fixed cost of $100.00 and a variable cost of $17.50 per unit for the first 50 units and then $35.00 per unit for all successive units. What is the average varia..
Common stock financing is often considered the safest form of financing, as the issuing firm is under no obligation to pay dividends. Owners of common shares assume this uncertainty in the hope of favourable returns. What is the argument for issuing ..
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