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Your company is considering an investment in a new product. The new product has been developed with a total cumulative investment of 2.5 million. To initiate the product from this point in time, a 1.5 million investment will be required. In addition, $250,000 of working capital must be added right away. Free cash flow from the project will be $300,000 the first year. Each successive year, the FCF will be 10% higher, but no additional working capital will be required. At the end of 10 years, the investment will have no value and the $250,000 of working capital will be returned to the company.
a. Construct a cash flow timeline appropriate for the investment decision.
b. What is the payback?
c. If the WACC is 10%, what is the NPV?
d. What is the IRR?
You are the manager of an independent manufacturer that sells protective cases for the Samsung Galaxy. Samsung produces half of its phones at a plant near Hong Kong and the other half at a plant located near Shanghai.
If an asset is sold at a gain, why is the gain subtracted from net income when computing the net cash provided by operating activities under the indirect method?
You own a mutual fund with an expected return of 10% per year and a standard deviation of returns of 12% per year. You are considering adding another stock to your portfolio. The new stock has an expected return of 10% per year and a standard deviati..
Weghorst Co. currently has 1,100,000 shares of common stock outstanding. If the firm pays 5% stock dividend, what will be the total number of shares outstanding after the stock dividend?
Explain how and why the secondary capital markets play an important role in our economy. how do secondary markets assist the primary market?
Mitzi's AGI for the year is $33,000. None of the medical costs are reimbursed by insurance. After considering the AGI floor, Mitzi's medical expenses total: Sidney purchased land in 2003 for $35,000 that she held as capital asses. This year, she cont..
Annieco's last dividend was $1.50 and is expected to grow at a 10% rate per year. The current stock price is $48. What is the current cost of common equity for this company?
A stock has an annual return of 11 percent and a standard deviation of 44 percent. What is the smallest expected loss over the next year with a probability of 1 percent?
Determine the annual financing cost of forgoing the cash discount if the credit terms are "1/10, net 30" and the invoice is not paid until it is 20 days past due.
A project has sales of $258,000, cost of $192,000, depreciation of $31,000, interest expense of $2,800, and a tax rate of 35 percent. What is the value of the depreciation tax shield?
A company anticipates revenues next year of $3,000,000. Interest expense is expected to remain the same at $50,000. The company expects to pay $40,000 in cash dividends. Prepare a Pro-Forma income statement for December 31, 2015 using the percentage ..
Interest on money market investments are pure discount securities. These securities are often quoted on a discount basis. Briefly describe what “pure discount security” means. Suppose you were to by a taxable bond yielding 5.32% and a non-taxable bo..
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