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A potential project requires the purchase of $612,000 of equipment. The equipment will be depreciated straight-line to a zero book value over the three-year life of the project. The equipment can be scraped at the end of the project for 45 percent of its original cost. Annual sales from this project are estimated at $418,000 with cash expenses of $287,000. Net working capital equal to 25 percent of sales will be required to support the project. The required return is 12 percent and the tax rate is 35 percent. What is the cash flow in Year 2 of the project?
Refining the target valuation based on new information uncovered during due diligence is most likely to affect which of the following:
Echo Company currently has 3 million shares of common stock outstanding with a price of $25.00 per share. The firm is expected to pay a $2.50 common dividend one year from today, and that dividend is expected to increase by 6 percent per year forever..
A futures price is currently 100. At the end of six months it will be either 112 or 90. The risk-free interest rate is 5% per annum. What is the value of a six-month European call option with a strike price of 100?
Assume the radiology group practice has the following cost structure: Fixed costs = $500,000 Variable cost per procedure = $25 Charges (revenue) per procedure = $100 the group expects to perform 7500 procedures next year. Construct a group’s base pro..
You deposit a sum of $10,000 today in your bank safe deposit box and leave it there. You learn nothing in your bank account as the money is sitting inside the safe deposit box. Assumes that inflation rate is running at 14% a year. How much will your ..
Suppose you know that a company’s stock currently sells for $58 per share and the required return on the stock is 10 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield.
Which of the following risks of a stock are likely to be firm-specific, diversifiable risks, and which are likely to be systematic risks? Which risks will affect the risk premium that investors will demand?
Stock X is expected to pay a dividend of $3.00 at the end of the year, i.e., D1 = $3.00, and that dividend is expected to grow at a constant rate of 6% a year. The stock currently trades at a price of $50 a share. Assume that the stock is in equilibr..
Stock A has a beta of 0.7, whereas Stock B has a beta of 1.3. Portfolio P has 50% invested in both A and B. Which of the following would occur if the market risk premium increased by 1% but the risk-free rate remained constant? Cheng Inc. is consider..
Bill signed a $8,000 discount note at the bank which charged him a 6.5% discount rate. The loan is for 300 days. Please show all work. Find the proceeds: Find the effective rate:
Market Enterprises would like to issue bonds and needs to determine the approximate rate they would need to pay investors. A firm with similar risk recently issued bonds with the following current features a 5% coupon rate, 10 years until maturity, a..
You enter into an automatic savings plan with RBC where $1250 is deducted from your paycheck at the end of each quarter starting on March 31, 2014 (first payment) to December 31, 2019 (last payment). If the account pays 8% (APR, monthly compounded), ..
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