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Amadeus Corporation is considering the issue of a new product to be added to its product mix. They hired you, a recent business graduate from MacEwan, for conducting the analysis. The production line would be set up in an unused space at the company’s main plant. The plant space could be leased out to another firm at $15,000 per year starting from year 1. They should buy new machinery. The approximate cost of the machine would be $160,000, with another $16,000 in shipping and handling charges. It would also cost an additional $24,000 to install the equipment. The machinery has an economic life of 5 years and would be in Class 8 with a CCA rate of 35%. The machinery is expected to have a salvage value of $90,000 after 5 years of use. The new product line would generate incremental sales of 1,500 units per year for 5 years and they are expected to grow 4% per year. The cost per unit is estimated in $60 per unit in the first year. Each unit can be sold for $210 in the first year. The sales price and cost per unit are both expected to increase by 3 % per year due to inflation. The fixed costs are estimated to be $90,000 at the end of 1st year and would increase with inflation. To handle the new product line, the firm’s net operating working capital would be an amount equal to 17% of sales revenues. The firm tax rate is 35%. There are 1000 common shares outstanding with market price of $40 each. Also, they have 100 preferred shares with market value of $50. There are $50,000 long-term bond trading in market with an average price of $1,100 and 6 years to maturity, and 8% semi-annual coupon. Common shares of firm have a beta of 1.3. Risk free rate is 4% and expected market return is 16%. Preferred stock holder are receiving 1 dollar quarterly dividend. The project is considered by the financial department to be as risky as the company. The reinvestment risk is assumed to be 15%.
Suppose that 5 yrs into the mortgage interest rates drop to 3% and you decide to refinance your mortgage.
Before there was Paris Hilton, there was Consuelo Vanderbilt Balsan – a Gilded Age heiress and socialite, re-nowned for her beauty and wealth.
Compute the expected return and the standard deviation of return for 4 portfolios with different weights w on asset A (and therefore weight 1-w on B): w= -0.5, w=0.3, w=0.8, w=1.3. Then sketch a porfolio frontier with the 4 portfolios, asset A and as..
Employee Stock Options (LO4, CFA2) In its 10Q dated February 4, 2012, LLL, Inc., had outstanding employee stock options representing over 272 million shares of its stock. S 5 current stock price 5 $20.72 K 5 option strike price 5 $23.15 r 5 risk-free..
Ferd Rumpledink, a foreign exchange trader at UBS Bank, is exploring covered interest arbitrage opportunities. He has 10,000,000 USD (or the CHF equivalent at the current spot rate) to invest and is considering a 180 day investment. Show your work on..
The treasurer of Kelly Bottling Company (a corporation) currently has $220,000 invested in preferred stock yielding 12 percent. He appreciates the tax advantages of preferred stock and is considering buying $220,000 more with borrowed funds. Compute ..
Chris wants to purchase manufacturing equipment from Owl LLC but he is a little short on cash and cannot get a loan from a bank. Owl LLC is willing to finance the purchase and the agreed that Chris will purchase the equipment for $350,000 (this is co..
A stock index is currently 1050 and has a volatility of 20% and a dividend yield of 2%. The risk-free rate is 5%. What is the value of a European 6-month call option with a strike price of 1000 using a 2-step tree?
Suppose that one year ago, the exchange rate between the Australian dollar and the US dollar was: 1 AUD = 1.0758 USD and today the exchange rate is: 1 AUD = 1.0237 USD. Calculate the percentage change in the value of the US dollar. Calculate the perc..
An annuity makes 5 equal annual payments of $2,000. what is the present value (today) of the annuity?
Maggie's Muffins, Inc., generated $4,000,000 in sales during 2013, and its year-end total assets were $3,000,000. Also, at year-end 2013, current liabilities were $1,000,000, consisting of $300,000 of notes payable, $500,000 of accounts payable, and ..
Identify the important elements of sales taxation in the state of Georgia.
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