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Your firm is considering developing an apartment complex. The firm owns land that could be used for the project; it was bought last year for $500,000. Real estate has gone up sharply in the last year: the land could be sold today for $625,000. Real estate values are expected to increase at 5 percent per year going forward from today. The permitting fees and sewage infrastructure development required for development cost $250,000 (the bill is due now and the project could not have proceeded without this work). This expense will be depreciated over the 30-year life of the project. The apartment buildings will be four-plex townhouses (i.e. buildings that have four apartments each). Each apartment will rent for $1,000 per month. Initially, your firm will build 20 townhouses; if the project is successful, there is space on the land for as many as twenty more townhouses. Each townhouse will cost $120,000 and will be depreciated straight-line to zero over the 30-year life of the project. In addition, the project will require a net working capital investment of $20,000 today—this amount will be recovered at the end of the project. At the end of the project, the townhouses will be completely trashed—the plan is to demolish them and sell the land. Demolition costs will be $150,000 before tax. Your variable cost is $1,250 per year per townhouse. Fixed costs are $130,000 per year. Your firm’s tax rate is 34% and the cost of capital is 10% What is the break even number of apartments that need to be build (remember you cannot build a fraction of an apartment building, so your answer has to be an integer)?
What is the asymmetric information concept? What role does this concept play in a company's decision to change its financial structure or issue new securities?
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.49 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be w..
Summit Systems will pay a dividend of $1.50 this year. If you expect Summit's dividend to grow by 6% per year, what is its price per share if its equity cost of capital is 11%?
Boo pack is preparing to pay its first dividends. It is going to pay $1.00, $2.50, and $5.00 a share over the next three years, respectively. After that, the company has stated that the annual dividend will be $1.25 per share indefinitely. What is th..
Determine the expected rate of return on equity under each of the working capital policies. Which working capital policy is riskier? Explain.
Explain rate parity theory and how it is used to predict future exchange rates and calculate the current Forward Exchange Rate for the United Statesand Egypt.
Neptune Biometrics, despite its promising technology, is having difficulty generating profits. Having raised $85 million in an initial public offering of its stock early in the year, the company is poised to intro- duce a new product, an inexpensive ..
A $1,000 corporate bond with 20 years to maturity pays a coupon of 7% (semi-annual) and the market required rate of return is a0 6.6% b) 13%. What is the current selling price for a) and b)?
Gold Mining, Inc. is using the profitability index (PI) when evaluating projects. Gold Mining’s cost of capital is 8.75 percent. What is the PI of a project if the initial costs are $2,371,020 and the project life is estimated as 9 years? The project..
Exactly what is the relationship between segmentation, target marketing, and positioning? What damage will be done to a company's target market and positioning efforts if markets are incorrectly segmented?
Bellfont Company produces doorstoppers. August production costs are below: Door Stoppers produced 79,000 Direct material (variable) $20,000 Direct labor (variable) 40,000 Supplies (variable) 20,000 Supervision (fixed) 26,400 Depreciation (fixed) 23,2..
Ken Allen, capital budgeting analyst for Bally Gears Inc., has been asked to evaluate a proposal. The manager of the automotive division believes that replacing the robotics used on the heavy truck gear-line will produce total benefits of 560,000 (in..
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