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Your firm is contemplating the purchase of a new $573,500 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $55,800 at the end of that time. You will be able to reduce working capital by $77,500 (this is a one-time reduction). The tax rate is 31 percent and your required return on the project is 24 percent and your pretax cost savings are $271,650 per year.
Questions:
1. What is the NPV of this project?
2. What is the NPV if the pretax cost savings are $195,600 per year?
3. At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?
The dividend should grow rapidly - at a rate of 50% per year - during Years 4 and 5. After year 5, the company should grow at a constant rate of 8% per year. If the required return on the stock is 15%, what is the value of the stock today?
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A firm has a current ratio of 1.8, a quick ratio of 0.7, and current liabilities of $1,200. What is the value of the inventory account?
Which project is the most valuable? 4. When considering the TVM which project is the most attractive?
A project has the following cash flows: What is the NPV at a discount rate of zero percent?
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If the stock sells for $39 per share, what is your best estimate of the company's cost of equity?
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George lends $200,000 for each new idea. George's history is that he selects low-risk projects or ideas that hit 80% of the time. What rate of return must each successful project pay George for him to break even?
A corporation with sales of $500,00 has average inventory of $200,000. The Company average for inventory turnover is four times a year.
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