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Consider a project to supply 108 million postage stamps per year to the U.S. Postal Service for the next five years. You have an idle parcel of land available that cost $1,980,000 five years ago; if the land were sold today, it would net you $2,180,000 aftertax. The land can be sold for $2,380,000 after taxes in five years. You will need to install $5.48 million in new manufacturing plant and equipment to actually produce the stamps; this plant and equipment will be depreciated straight-line to zero over the project’s five-year life. The equipment can be sold for $580,000 at the end of the project. You will also need $680,000 in initial net working capital for the project, and an additional investment of $58,000 in every year thereafter. Your production costs are .58 cents per stamp, and you have fixed costs of $1,050,000 per year. If your tax rate is 30 percent and your required return on this project is 10 percent, what bid price should you submit on the contract? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., 32.16161.)
In the two-period model, suppose a household's income in the first period is $40,000, income in the second period is $50,000, and the real interest rate is 25 percent. A sudden shock changes the household's income to $45,000 and income in the second ..
The real risk-free rate is 3.55%, inflation is expected to be 2.55% this year, and the maturity risk premium is zero. Taking account of the cross-product term, i.e., not ignoring it, what is the equilibrium rate of return on a 1-year Treasury bond?
BUACC5936 - FINANCIAL MANAGEMENT. What difference would it make to the sum repayable after two years (as a single lump sum) if the amount of $5,000 is borrowed at 12% p.a. compounded (a) annually or (b) monthly? How much interest is payable in eac..
House Mountain Breweries (HMB) is planning an IPO. Its underwriters have said that the stock will sell at $25 per share. The direct costs (legal, printing, etc.) will be $750,00. The underwriters will charge a 7 percent spread. How many shares must H..
The Yo-Yo Corporation tries to determine the appropriate cost for retained earnings to be used in capital budgeting analysis. The firm’s beta is 1.98. The rate on six-month T-bills is 2.04%, and the return on the S&P 500 index is 8.82%. What is the a..
Suppose that the risk-free rate is 5% and that the market risk premium is 7%. What is the required return on (1) the market, (2) a stock with a beta of 1.0, and (3) a stock with a beta of 1.7? Assume that the risk-free rate is 5% and that the market ..
Suppose that Diversified Technology has a B-rated bond with exactly 30 years until maturity, a face value of $1000 and a semiannual coupon rate of 6%. The yield to maturity on B-rated bonds today is 10 percent. What is the price of this bond today?
The stock price of Chevron (CVX) closed on March 6 at $87.93 per share. The annual dividend is $4.28 and is not expected to grow. The net income for the year ending 12/31/13 was $4.587 billion. There are 1.88 billion shares outstanding. What is the d..
Taxes are an important consideration in the leasing decision. Who is more likely to lease, a profitable corporation in a high tax bracket or a less profitable one in a low tax bracket? Explain why.
Recently, Wells Fargo CEO John Stumpf testified before the Senate Finance Committee regarding the opening of over 2 million accounts without client consent. In some cases, people were charged fees, late fees, and collection fees on accounts they had ..
Last year Urbana Corp. had $197,500 of assets, $307,500 of sales, $19,575 of net income, and a debt-to-total-assets ratio of 37.5%. The new CFO believes a new computer program will enable it to reduce costs and thus raise net income to $33,000. Asset..
A proposed cost-saving device has an installed cost of $630,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes. The device has an estimated year 5 salvage value of $70,000. What level..
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