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Valles Global Industries (VGI) is considering selling a product. The contract sells parts for revenue of $65 million a year for 5 years. Their initial investment is $250 million and the equipment has no salvage at 5 years. They estimate production costs at $8,000, 000 per year. They use straight-line depreciation and pay tax at 48%. If VGI’s After-Tax MARR is 10%, should they do this project? Why?
The price of a stock is $25 and the price of a three-month call option on the stock with a $27 strike is $2.50. Suppose a trader has $2,500 to invest and is trying to choose between buying 1,000 options (10 contracts) or 100 shares of stock. How high..
A stock price is $103 per share, exercise price of the options is $100 per share, all options are European and the stock does not pay any dividend. Option contracts are written on 100 shares of stock and mature in 6 months. The call price is $9 per s..
A suburban taxi company is considering buying taxis with diesel engines instead of gasoline engines. The cars average 50,000 km a year. Use an annual cash flow analysis to determine the more economical choice if interest is 6%
The U.S. financial system has many complexities, and it is impacted by several environmental factors, including federal regulations and the economy.
Security I has a beta of 1.3, the risk-free rate is 4%, and the expected return on the market is 11%. What is the expected return for Security I?
Calculate the individual costs and wacc. Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the follow..
Purple Dalia, Inc. has the following balance sheet items: current liabilities of $818,046; net fixed and other assets of $1,785,530; total assets of $3,087,260; and long-term debt of $759,092. What is the amount of the firm’s total stockholder’s equi..
Able, Baker, and Charlie are the only three stocks in an index. The stocks sell for $57, $315, and $114, respectively. If Baker undergoes a 3-for-2 stock split, what is the new divisor for the price-weighted index?
Collin Products received notice of a $21,000 income tax deficiency plus $4,300 inter-est. The deficiency related to an incorrect method of accounting for business inventory. Compute the after-tax cost of the $4,300 interest payment assuming that: a. ..
You plan to start saving for your son’s college education. He will begin college when he turns 18 years old and will need $4,000 at that time and in each of the following three years. You will make a deposit at the end of this year in an account that..
The local home improvement store has a washing machine on sale for $601, with the payment due in 2 years from today. The store is willing to discount the price at an annual rate of 9 percent (compounded annually) if you pay today. What is the amount ..
You are working as a corporate treasurer and observe the following two exchange rates. Calculate, using $1 million how you could make an arbitrage (risk-free) profit.
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