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Bobs Bikes Ltd has recently (late 2003) completed a $100,000, two-year marketing study on introducing a new tricycle model. Based on the results of the study, Bobs Bikes expects to sell 1,000 of the new tricycles in 2004 at a price of $300 each. Sales volume will grow at 10% p.a. for the four years through to 2007 in real terms and Bobs expects that the price for each tricycle will increase along with the expected inflation rate of 5% p.a.Bobs will need to buy a tricycle welding machine for $500,000. The machine will be depreciated for tax purposes over five years using straight line depreciation. The incremental labour expenses to produce the tricycles will be $100,000 p.a. without allowing for inflation. Materials are expected to cost $100 per tricycle in 2004 dollars Labour and materials prices will grow with inflation. Bobs Bikes also expects that the company will need $100,000 in working capital to run the business; this amount is not expected to grow.Bobs Bikes is an ongoing, profitable business and pays taxes at a 30% rate on all income. Bobs Bikes has a 50% target debt/equity ratio, a nominal cost of equity of 14% p.a. and a nominal cost of debt of 8% p.a. At the end of 2007 Bobs Bikes plans to consider the following alternatives:(a) Sell the welding machine for $200,000 and close the tricycle business; or(b) Sell the tricycle business for an after-tax price of five times the 2007 after-tax profit
Calculate the discount factor for each year (use 4% discount rate @ 15 years) Calculate the annual present value cost of maintenance (15 years) Calculate the discounted benefit of rehabilitating the armory
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The XYZ Electric Corporation has analyzed sales projections for the coming year based on projected weather for the summer. XYZ believes that revenue will be $22,000,000 if the summer is unseasonably cool.
Suppose the U.S. interest rate is 7.5%, the New Zealand interest rate is 6.5%, the spot rate of NZ$ is $.52, and the one? Year forward rate of the NZ$ is $.52. At the end of the year, the spot rate is $.48
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Objective type question on dividend decisions and Low dividends may increase stock value according to which
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You work for ABC in finance department and own shares that are selling at $20 per share on the NYSE. There is a new stock offering that is going to be publicly declared.
Describe how international business may impact a local car business on the basis of competition, exchange rate and interest rate.
How would you compute the present and future value of following annuity streams? $5,000 received each year for 5 years on the first day of each year if your investments pay 6 percent compounded annually.
Calculation of Cost of common Equity for WACC decisions and what is the estimated cost of common equity using the DCF approach
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