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Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt–equity ratio of .69. It’s considering building a new $65.9 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $7.84 million in perpetuity. There are three financing options:
A new issue of common stock: The required return on the company’s new equity is 15.1 percent.
A new issue of 20-year bonds: If the company issues these new bonds at an annual coupon rate of 7.4 percent, they will sell at par.
Increased use of accounts payable financing: Because this financing is part of the company’s ongoing daily business, the company assigns it a cost that is the same as the overall firm WACC. Management has a target ratio of accounts payable to long-term debt of .12. (Assume there is no difference between the pretax and aftertax accounts payable cost.)
If the tax rate is 40 percent, what is the NPV of the new plant?
Lithium, Inc is considering two mutually exclusive projects A and B. Project A cost $95,000 and is expected to generate $65,000 in year one and $75,000 in year two. Project B COST $120,000 and it is expected to generate $64,000 in year one , $67,000 ..
You have been asked to estimate the expected free cash flow to the firm next year of Lymon Enterprises, a beverage company. The earnings before interest and taxes in the most recent year amounted to $ 150 million. The tax rate of the firm is 40%. Est..
Mojito Mint Company has a debt–equity ratio of .30. The required return on the company’s unlevered equity is 13 percent, and the pretax cost of the firm’s debt is 7.8 percent. Sales revenue for the company is expected to remain stable indefinitely at..
If H and I were more correlated, what would the efficient frontier between them look like? - If H and I were less (or more negatively) correlated, what would the efficient frontier between them look like?
Let say you are given $1,000,000 to invest and you choose to diversify your porfolio into different stocks, EFTs, MFs (stocks like google, amazon apple, microsoft, nike, under armor, alibaba ect..) Come up with a clear investment strategy.
What are sunk costs? Provide examples and how are they handled in making decisions. One of the economic concepts we deal with is opportunity cost. Discuss opportunity costs and provide examples.
Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12.10 million. This investment will consist of $2.70 million for land and $9.40 million for trucks ..
What is its YTM? - If the yield curve is a flat 3%, what is its Macaulay duration?- If the yield curve is a flat 10%, what is its Macaulay duration?
How much will the investor receive at maturity? A) $30,000 B) $60,000 C) $1800 D) $20,000
You are benefits consultant reviewing the disability coverage’s offered by one of your client firms. ."The plan is not integrated with workers' compensation or Social Security benefits at all. Explain to the firm why they have such a high rate of dis..
Economists estimate the one- year inflation rate to be 4 percent in the United States. The one- year Treasury bill with a face value of USD 100 is quoted at a discount of USD 2.5 from face value. Estimate the real interest rate. (use p.pp%)
Your younger sister is just starting high school, and 4 years from today she should be entering college. Your father plans to start a college fund for her, beginning today. He will invest $6,000 per year in a mutual fund, beginning today, and he expe..
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