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You are considering expanding your product line that currently consists of skateboards to include gas-powered skatenboards, and you feel you can sell 10,000 of these per year for 10 years (after which time this project is expected to shut down with solar-powered skateboards taking over). The gas skateboards would sell for $100 each with variable costs of $40 for each one produced, while annual fixed costs associated with production would be $160,000 per year. In addition, there would be a $1,000,000 initial expenditure associated with the purchase of a new production equipment. It is assumed that this initial expenditure will be depreciated using the straight-line depreciation method down to zero over 10 years. This project will also require a one-time initial investment of $50,000 in net working capital associated with inventory and that working capital investment will he recovered when the project is shut down. Finally, assume that the firm's marginal tax rate is 34 percent and the required return is 10 percent.
a) Calculate the NPV of the project. Do you accept the project?
b) What is the minimum number of gas-powered skateboards that you need to sell each year so that the project does not destroy value?
Schultz Industries is considering the purchase of Arras Manufacturing. What is the maximum price per share Schultz should pay for Arras?
ABC’s last dividend paid was $0.44, its required return is 14%, its growth rate is 4%. What is ABC's expected stock price in 11 years?
After Dan’s EFN analysis for East Coast Yachts (see the Mini Case in Chapter 3), Larissa has decided to expand the company’s operations. She has asked Dan to enlist an underwriter to help sell $50 million in new 20-year bonds to finance new construct..
You have a $1000 portfolio that is invested in stocks A and B plus a risk-free asset. $175 is invested in stock A.
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Determine the maximum required rate of return that the firm can have and still accept the asset.
You want to buy a house within 3 years, and you are currently saving for the down payment. You plan to save $5,000 at the end of the first year, and you anticipate that your annual savings will increase by 10% annually thereafter. Your expected annua..
The greater the variability of the possible returns on an investment,
Suppose you have $100,000 today that you want to save for 10 years. Compare the following two savings plans. Bank A offers you the following product: For the first $70,000 you obtain 8% p.a. (per annum) for 10 years. Suppose bank B wants to match the..
First Simple Bank pays 8.5 percent simple interest on its investment accounts. First Simple Bank over an investment horizon of 10 years?
Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 9%. What is the yield to maturity at a current market price of .
Would you consider this to be a good investment for an investor seeking a low-risk investment?
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