User Account

All Pages

Growth option-decision-tree analysis

Assignment Help Finance Basics
Reference no: EM132585608

Growth Option: Decision-Tree Analysis

Fethe's Funny Hats is considering selling trademarked, orange-haired curly wigs for University of Tennessee football games. The purchase cost for a 2-year franchise to sell the wigs is $20,000. If demand is good (40% probability), then the net cash flows will be $23,000 per year for 2 years. If demand is bad (60% probability), then the net cash flows will be $5,000 per year for 2 years. Fethe's cost of capital is 12%. Do not round intermediate calculations.

-What is the expected NPV of the project? Negative value, if any, should be indicated by a minus sign. Round your answer to the nearest dollar.$

-If Fethe makes the investment today, then it will have the option to renew the franchise fee for 2 more years at the end of Year 2 for an additional payment of $20,000. In this case, the cash flows that occurred in Years 1 and 2 will be repeated (so if demand was good in Years 1 and 2, it will continue to be good in Years 3 and 4). Write out the decision tree. Note: The franchise fee payment at the end of Year 2 is known, so it should be discounted at the risk-free rate, which is 8%.Make a decision tree

-Use decision-tree analysis to calculate the expected NPV of this project, including the option to continue for an additional 2 years. Negative values, if any, should be indicated by a minus sign. Round your answer to the nearest dollar.

Reference no: EM132585608

Questions Cloud

Calculate the amount of interest paid in cash every payment : Calculate the actual interest rate under the straight-line method of amortization for each six-month period. Round all percentage calculations
Appreciation of the ntd against the dollar : Explain how the following trade patterns would be affected by the appreciation of the NTD against the dollar
Bond valuation with semiannual payments : Renfro Rentals has issued bonds that have an 11% coupon rate, payable semiannually. The bonds mature in 11 years
Which financing option advantageous to common stockholder : Bagan Corporation, a profitable growth company, Which financing option is most advantageous to the common stockholders? Why?
Growth option-decision-tree analysis : Fethe's Funny Hats is considering selling trademarked, orange-haired curly wigs for University of Tennessee football games.
Compute what are benefits of corporation : Compute What are benefits of corporation in comparison with partnership and proprietorship structures? How is equity treated and reported differently
Yield to maturity and call with semiannual payments : Thatcher Corporation's bonds will mature in 13 years. The bonds have a face value of $1,000 and a 9.5% coupon rate
How much at the end of four years : $2,000 invested today earning 4.5% per year with interest compounded annually would equal how much at the end of four (4) years?
Determine bond pricing at per or discount value : Define coupon and market/effective interest rate as they determine bond pricing at per, premium, or discount value. provide the suitable example.

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd