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Net present value is preferred to internal rate of return for capital budgeting decisions because a. the internal rate of return for a project is different for each firm. b. the net present value allows you to compare mutually exclusive projects. c. the internal rate of return does not allow you to determine if the project is acceptable. d. the net present value is the only method that allows you to determine which independent project is acceptable. e. NPV contains information about a projects "safety margin" which is not inherent in IRR.
Patton Paints Corporation has a target capital structure of 25% debt and 75% common equity, with no preferred stock. Its before-tax cost of debt is 11% and its marginal tax rate is 40%. The current stock price is P0 = $32.00. The last dividend was D0..
A firm has 0 debts in its capital structure. Its overall cost of capital is 9%. The firm is considering a new capital structure with 40% debt. The interest rate on the debt would be 4%. Assuming that the corporate tax rate is 34%, what would be its c..
ABC Company purchased some new equipment 2 years ago for $143,130. Today, it is selling this equipment for $35,357. What is the aftertax cash flow from this sale if the tax rate is 29 percent? The MACRS allowance percentages are as follows, commencin..
Cops & Co. expects its EBIT to be $60,000 every year forever. A cop currently has no debt and its cost of equity is 22 percent. The firm is considering issuing new par bonds and uses the proceeds of the new debt to repurchase equity. What is the valu..
Canyon Tours showed the following components of working capital last year: Beginning End of Year Accounts receivable $26,200 $24,100 Inventory 13,100 14,700 Accounts payable 15,600 18,700 a. What was the change in net working capital during the year?..
A 10-year US government bond issued on July 1, 2004 had an annual coupon of 4.39% paid semi-annually, a face value of $1000, and the first coupon payable in 6 months on January 3, 2005. Suppose the yield curve when the bond was issued was as given..
On 3 August 2011 Ross Creek Ltd declared and paid a dividend of $10000 from profits earned prior to its acquisition by Sebastopol Ltd. The directors consider that the value of the investment in Ross Creek Ltd has been impaired and have adjusted the p..
An asset has had an arithmetic return of 10.2 percent and a geometric return of 8.2 percent over the last 88 years. What return would you estimate for this asset over the next 9 years? 24 years? 40 years? (Do not round intermediate calculations. Ente..
A stock has an expected return of 14.6 percent, the risk-free rate is 5.70 percent, and the market risk premium is 7.3 percent. Required: What must the beta of this stock be?
Sloan Transmissions, Inc., has the following estimates for its new gear assembly project: price = $1,700 per unit; variable costs = $480 per unit; fixed costs = $4.1 million; quantity = 95,000 units. Suppose the company believes all of its estimates ..
A new startup, Mensa, has developed their best available project that will require an immediate outflow (an investment today) of $48855. The project's long-term cash flows are expected to be $22150 per year for 4 consecutive years beginning in one ye..
Suppose you purchase a call option for $5 and a strike price of $40. On the expiration day, the price of the stock is $55. What is the return on the call option if you hold your position until maturity?
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