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Eastern Clothing Company is considering manufacturing a new style of shirt, whose data are shown below. The equipment to be used would be depreciated by the straight-line method over its 3-year life and would have a zero salvage value, and no new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other Eastern's products and would reduce their pre-tax annual cash flows. What is the project's NPV? WACC 10.0% Pre-tax cash flow reduction for other products (cannibalization) $5,000 Investment cost (depreciable basis) $80,000 Straight-line deprec. rate 33.333% Sales revenues, each year for 3 years $67,500 Annual operating costs (excl. deprec.) $25,000 Tax rate 35.0%
Sophia purchased a variable annuity contract with $50,000 purchase payment. Surrender charges begin with 7 percent in the first year and decline by 2 percent each year. In addition, Sophia can withdraw 10 percent of her contract value each year witho..
ABC earned a net profit margin of 5.8% last year and had an equity multiplier of 3.8. If its total assets are $102 million and its sales are 183 million, what is the firm's return on equity?
An unlevered company operates in prefect markets and has a earnings before interest and taxes (EBIT) of $250,000. Assume that the required return on assets for firms in this industry is 12.5%. Suppose that the firm issues $1 million worth of debt wit..
Does the IMF have more control over pegged exchange rate prior to 1971, than it does today over floating exchange rate?
Sarah purchased a stock one year ago at a price of $32 a share. In the past year, she has received four quarterly dividends of $0.75 each. Today she sold the stock for $38 a share. Her capital gain per share is
The disadvantages of debt to the corporation include all but which of the following?
explain the role of government in international trade the various levels of economic integration and the impact on
What is percentage of long-term debt, common stock, retained earnings and preferred stock in each company’s capital structure? Prepare a table to display your results. Discuss each company’s relative amount of long-term debt, common equity and retain..
Create the statement of sources and uses of cash from the following entries:
Project Alpha has an internal rate of return (IRR) of 15 percent. Project Beta has an IRR of 14 percent. Both projects have a required return of 12 percent.
What can a financial institution often do for a surplus economic unit that it would have difficulty doing for itself if the surplus economic unit (SEU) were to deal directly with a deficit economic unit (DEU)?
A 40-year-old individual establishes a retirement account that is expected to earn 7 percent annually. Contributions will be $2,000 annually at the beginning of each year. Initially, the saver expects to start drawing on the account at age 60.
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