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Dexter & Daughter are considering a perpetual project which will produce annual cash inflows from sales of $126,000 and annual cash costs of $87,500. The initial cost of the project is $134,000. The firm has a 34 percent tax rate and an unlevered cost of capital of 15 percent. The firm has a policy of financing 45 percent of the initial cost of each new project with debt. What is the adjusted present value of this project?
Your broker recommends that you purchase XYZ Inc. at $60. The stock just paid a $2.40 dividend which (like its per share earnings) is expected to grow annually at 8 percent. If you want to earn 12 percent on your funds, how much could the market pric..
The company you work for will deposit $150 at the end of each month into your retirement fund. Interest is compounded monthly. You plan to retire 25 years from now and estimate that you will need to withdraw $2,000 per month during retirement, which ..
Percy Motors has a target capital structure of 30% debt and 70% common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 11%, and its tax rate is 40%. Percy's CFO estimates that the company's WACC is 14.30%...
Assume a company has just paid an annual dividend of $0.95. Analysts are predicting an 11.1% per year growth rate in earnings over the next five years. After that, the company's earnings are expected to grow at the current industry average of 4.8% pe..
A share of stock with a beta of .81 now sells for $69. Investors expect the stock to pay a year-end dividend of $4. The T-bill rate is 4%, and the market risk premium is 7%. Suppose investors believe the stock will sell for $71 at year-end. Is the st..
There are six farmers in Great Britain with access to government land to graze their cows for free. They all must share the land. The grass is a limited resource. What strategy do you propose to the farmers?
Jackson Inc. and Simon are two identical firms operating in identical markets. Jackson is unlevered with assets valued at $3,000 and has 175 shares of stock outstanding. Simon also has $3,000 in assets and has $1,200 in debt financed at an interest r..
Ghost Rider Corporation has bonds on the market with 14 years to maturity, a YTM of 6.2 percent, and a current price of $923. What must the coupon rate be on the company’s bonds?
Consider a project with an initial outlay of $1,000 and yearly cash flows as follows: -200, -100, 300, 300, 300, 100, 100, 200, 700, 400, and 100. Calculate the classical payback period assuming 10% cost of funds.
If a firm is exposed to a high degree of business risk as a result of its high operating leverage, then it probably should offset this risk by using a larger-than-average amount of financial leverage. This follows because debt has a lower after-tax c..
Which one of the following statements is correct regarding the use of probability distributions?
Harry's Inc. is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that if a project's projected NPV is negative, it should be rejected.
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