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Another utilization of cash flow analysis is setting the bid price on a project. To calculate the bid price, we set the project NPV equal to zero and find the required price. Thus the bid price represents a financial break-even level for the project. Guthrie Enterprises needs someone to supply it with 149,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It will cost you $1,890,000 to install the equipment necessary to start production; you’ll depreciate this cost straight-line to zero over the project’s life. You estimate that in five years this equipment can be salvaged for $159,000. Your fixed production costs will be $274,000 per year, and your variable production costs should be $9.40 per carton. You also need an initial investment in net working capital of $139,000. The tax rate is 35 percent and you require a 10 percent return on your investment. Assume that the price per carton is $16.90.
What is the minimum number of cartons per year that can be supplied and still break even? (Do not round intermediate calculations and round your answer to the nearest whole number. (e.g., 32))
What is the highest fixed costs that could be incurred and still break even? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
What are the ways a firm can obtain short-term financing? Explain.
An equally weighted portfolio consists of 46 assets which all have a standard deviation of 0.119. The average covariance between the assets is 0.08. Compute the standard deviation of this portfolio.
Miller/Hershey's preferred stock is selling at $54 on the market and pays an annual dividend of $4.00 per share. If an investor's required rate of return is 8%, what is the value of the stock to that investor?
Six-month T-bills have a nominal rate of 4%, while default-free Japanese bonds that mature in 6 months have a nominal rate of 2%. In the spot exchange market, 1 yen equals $0.005. If interest rate parity holds, what is the 6-month forward exchange ra..
McDowell Industries sells on terms of 3/10, net 25. Total sales for the year are $1,561,000; 40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average, 74 days after their purchases. Assume 365 days in year for ..
The Matrix Company began operations as of the beginning of 2015. During 2015, Matrix reported GAAP (book) income before taxes of $789,500. For income tax purposes, depreciation expense was $150,000; for GAAP (book) purposes, depreciation expense was ..
Calculate a table of interest rates based on the following information:
Troy has a 2-stock portfolio with a total value of $100,000. $37,500 is invested in Stock A with a beta of 0.75 and the remainder is invested in Stock B with a beta of 1.42. What is his portfolio’s beta?
What will the adjusted EPS and DPS be (rounded to the nearest cents)? And what would the stock price be (rounded to the nearest cent)?
You purchased one of AAA Corp.’s 9%, 15-year convertible bonds at its $1,000 par value a year ago when the company’s common stock was selling for $25. Similar bonds without a conversion feature returned 10% at the time. You exercise the conversion fe..
Assume that a new project will annually generate revenues of $2,300,000 and cash expenses (including both fixed and variable costs) of $700,000, while increasing depreciation by 170,000 per year. In addition the firm’s tax rate is 33%. Calculate the ..
The price of a European put that expires in eight months and has a strike price of $50 is $3. The underlying stock price is $53, and a dividend of $1 is expected in three months and again in six months. Explain the arbitrage opportunity in the above ..
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