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The ABC company sells regular watches, priced at $35. It sold 10000 pieces this year, and both the price and sales volume are expected to grow at the rate of inflation. It is proposing to introduce a new line of luxury watches. It is expected that luxury watch sales will be 50000 pieces in the first year, and rise at a constant rate to 100000 in year 5, and then drop at a constant rate to 60000 by year 10. Inflation is expected to be 2% in year 1, increase to 3% in years 2 through 7 and then remain at 3.5%. Fixed operating costs are expected to be $2 million per year. Variable costs will be 75% of sales in year 1, and then reduce by 3% every year to 48% in year 10. The initial sales price will be $500 in year 1, and then will rise at the rate of inflation + 1% thereafter. Because it introduces the new luxury watches, it will reduce its sales of regular watches (pre-tax margin 20%) by 75%. It will have to use land it already has, with a market value of $2 million. The buildings and machinery will cost $1 million at the start of each of the next two years, and working capital will be 10% of total sales, invested at the start of each year. The fixed assets will be depreciated to zero over 5 years, zero salvage value. Land will increase in value with inflation, and working capital will retain its value.
The tax rate is 35%, equity beta is 1.2, Rf is 5% and MRP is 7.5%. Over the next 10 years, ROE is expected to be 12%, ROA is expected to be 8%. Debt constitutes 25% of the firm's capital structure in market value terms. ABC has current debt (15 year bonds issued on March 2007), paying $3.5 semi-annual coupon trading at $101.25. Compute the NPV of the transaction.
The required return is 15 percent. What is the IRR for this project?
Using a financial calculator: Stern Manufacturing issued a 10-year, 12% SEMI-ANNUAL bond 5-years back. The debt issue is currently priced at $925.00. The firm's marginal tax rate is 39%. What is Stern's after-tax component cost of debt?
What is meant by disposability engineering and environmental engineering? How do they relate to each other? How do they differ?
information technology and management information systems allow organizations regardless of size to communicate
then and now inc. has an average collection period of 37 days. its average daily investment in receivables is 92000.
Stratosphere Wireless is examining its cash conversion cycle. The company expects its cost of goods sold, which equal 80 percent of sales, to equal $480,000 this year.
Referring to the same business you either started or purchased in the first assignment, write a 6-8 page paper in which you: Outline a financial plan for your small business.
What is the market value of equity? Which number is more relevant for shareholders?
Operational leverage should discuss the appropriate cost of capital tools including weighted average cost of capital and the capital asset pricing model.
Identify the alternatives for investing cash on a short-term basis, and discuss the general characteristics of each.
If you will not be able to attend class that day, please submit it before class by email to [email protected] or at my office, 375A Jacobs (put Assignments under the door if I am not there).1. BP has come out with a new product. As a result, the fir..
Which of the following is calculated by subtracting the cost of goods sold and administrative expense from net sales?
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