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We are examining a new project. We expect to sell 6,600 units per year at $60 net cash flow apiece for the next 10 years. In other words, the annual operating cash flow is projected to be $60 × 6,600 = $396,000. The relevant discount rate is 14 percent, and the initial investment required is $1,770,000. After the first year, the project can be dismantled and sold for $1,640,000. Suppose you think it is likely that expected sales will be revised upward to 9,600 units if the first year is a success and revised downward to 5,200 units if the first year is not a success.
a. If success and failure are equally likely, what is the NPV of the project? Consider the possibility of abandonment in answering.
b. What is the value of the option to abandon?
You used Dell as a representative company to estimate the cost of capital for GCI. What are some of the potential problems with this approach in this situation? What improvements might you suggest?
For each of the following situations, what amount would the insurance company pay? (Leave no cells blank - be certain to enter "0" wherever required.) a. Wind damage of $2,300; the insured has a $600 deductible. Insurance payment $ b. Theft of a ster..
What is the maximum amount a firm should pay for a project that will return $15,000 annually for 5 years if the opportunity cost is 10%?
Increased needs for net working capital are:
Stuart, Inc. reported net income of $20 million for last year. Depreciation expense totaled $15 million and capital expenditures came to $5 million. Free cash flow is expected to grow at a rate of 5% for the foreseeable future. Stuart faces a 40% tax..
All of the following will increase the discretionary financing needed EXCEPT:
Future Value At age 25 you invest $1,800 that earns 9 percent each year. At age 30 you invest $1,800 that earns 12 percent per year. In which case would you have more money at age 60? Trying to save time on my exam by learning how
What is the standard deviation of a two-asset portfolio comprised of Stock A and Stock B if both Stock A and Stock B have a variance of 0.2209, the correlation coefficient between the two stocks is -0.17, and Stock A makes up 24% of the portfolio?
Deployment Specialists pays a current (annual) dividend of $1 and is expected to grow at 24% for two years and then at 5% thereafter. If the required return for Deployment Specialists is 9.5%, what is the intrinsic value of Deployment Specialists sto..
"To finance its on going construction project, Bowen-Roth Inc. will need $5,000,000 of new capital during each of the next 3 years. The firm has a choice of issuing new debt or equity each year as the funds are needed, or issue only debt now and equi..
In May of 201X, six-month futures on the Imaginary Country stock index traded at 15,330. Spot was 13,743. The interest rate was 15 percent and the dividend yield was 7 percent. Were the futures priced fairly?
Here are data on $1,000 par value bonds issued by Microsoft, Ford, and Xerox at the end of 2008. Assume you are thinking about buying these bonds as of January 2009. Calculate the values of the bonds if your required rates of return are as follows. E..
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