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KADS. Inc.. has spent $300,000 on research to develop a new computer game. The firm is planning to spend $100,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated: they total $40,000. The machine has an expected life of three years, a $65,000 estimated resale value, and falls under the MACRS 7-year class life. Revenue from the new game is expected to be $500,000 per year, with costs of $150,000 per year. The firm has a tax rate of 39 percent, an opportunity cost of capital of 13 percent, and it expects net working capital to increase by $50,000 at the beginning of the project.
What will the cash flows for this project be? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.)
A put option on Macrohard stock with a strike price of $36 has a time value of $1.50, and a premium of $4.00. What must be the price of the stock? Show your calculations. Is this put option in or out of the money? Explain.
Aberwald Corporation expects to order 126,000 memory chips for inventory during the coming year, and it will use this inventory at a constant rate. Fixed ordering costs are $300 per order; the purchase price per chip is $20; and the firm's inventory ..
Bill’s Bakery has current earnings per share of $2.5. Current book value is $4.3 per share. The appropriate discount rate for Bill’s Bakery is 17 percent. Calculate the share price for Bill’s Bakery if earnings grow at 3.4 percent forever.
Dickinson Brothers, Inc., is considering investing in a machine to produce computer keyboards. The price of the machine will be $993,000, and its economic life is five years. The machine will be fully depreciated by the straight-line method. The corp..
All secondary markets are broker markets. All stock transactions are secondary market transactions. All Dutch auction sales are secondary market transactions. All stock trades between existing shareholders are secondary market transactions.
Compute the guaranteed euro proceeds from the American sale if Airbus decides to hedge using a forward contract and At what future spot exchange do you think Airbus will be indifferent between the option and money market hedge?
An investor currently holds the following portfolio: If the risk-free rate of return is 4% and the expected market return is 13%, then the required return on the portfolio is
An unlevered firm has a value of $700 million. An otherwise identical but levered firm has $130 million in debt at a 5% interest rate. Its cost of debt is 5% and its unlevered cost of equity is 11%. No growth is expected. Assuming the corporate tax r..
CSM Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $495,000 is estimated to result in $194,000 in annual pretax cost savings. The press falls in the MACRS five-year class (MACRS Ta..
Terps Builders is currently using the Dual Rate method for overhead allocation. As the project manager of University View, how much overhead should you charge on the total project cost?
HND Diploma in Business - MANAGING FINANCIAL RESOURCES AND DECISIONS Understand the sources of finance available to a business and understand the implications of finance as a resource within a business
Suppose Alpha Company projects the following free cash flows (FCF) during the next three years, after which FCF is expected to grow at a constant rate of 4%: $20m, $40m, $50m. Its cost of debt is 6%, the tax rate is 30%, the market risk premium is 7%..
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