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Your company, Home Maintenance, Inc., has decided to expand into lawn care. The expansion will involve the purchase of a truck, trailer, mowers, edgers and other miscellaneous equipment costing approximately $70,000. This equipment will have no salvage value at the end of three years. They will be depreciated on a straight-line basis over 3 years. The average price per lawn is $50, and you expect to be able to do 300 lawns per week, for 20 weeks of the year. You expect to do the same number of lawns each year. You will have three employees whom you will have to pay $9 each, or $27 total, per lawn. The cost of gas and oil is approximately $4 per lawn. You will spend some of your own additional time managing the business, and value this time at $16,000 per year. You estimate that you will need approximately $2,500 in working capital immediately, which you will get back at the end of the project. You paid $3,000 last year for a business plan and permit for the lawn service. Your company is financed entirely with equity. Assume the appropriate cost of capital for the project is 15%.
Prepare pro-forma income statements for the three years.
Determine whether you should you open this business.
Yield to Maturity A 5.65 percent coupon bond with 18 years left to maturity is offered for sale at $1,035.25. What yield to maturity is the bond offering? (Assume interest payments are semiannual.)
Botany Bay Corporation of Australia seeks to borrow US$30,000,000 in the eurodollar market. Funding is needed for two years. Investigation leads to three possibilities. Compare the alternatives and make a recommendation. Botany Bay could borrow the U..
Compute Bond Price Compute the price of a 3.8 percent coupon bond with 15 years left to maturity and a market interest rate of 6.8 percent. (Assume interest payments are semiannual.) Is this a discount or premium bond? (LG7-4)
Stock X has an expected return of 8% and Stock Z has an expected return of 12%. The standard deviation of the expected return is 10% for both stocks. Assume that these are the only two stocks available in a hypothetical world. What is the expected re..
Mini Case BUNYAN LUMBER, LLC Bunyan Lumber, LLC, harvests timber and delivers logs to timber mills for sale. The company was founded 70 years ago by Pete Bunyan. The current CEO is Paula Bunyan, the granddaughter of the founder. The company has agree..
On March 16, the June T-bond futures contract was priced at 100 17/32 and the September contract was at 99 17/32. Determine the implied repo rate on the spread.
Normal production capacity of the business is 2000 units. Budgeted sales for April-2015 are 2200 units. Fixed cost remains unchanged in each month. You are required to, Determine the break even production level for month of March. Calculate Margin ..
A local furniture store is advertising a deal in which you buy a $3,800 dining room set and do not need to pay for two years (no interest cost is incurred. How much money would you have to deposit now in a savings account earning 6 percent APR, compo..
Your firm has an average collection period of 20 days. Current practice is to factor all receivables immediately at a 1.00 percent discount.
Able, Baker, and Charlie are the only three stocks in an index. The stocks sell for $73, $200, and $110, respectively. If Baker undergoes a 3-for-2 stock split, what is the new divisor for the price-weighted index?
If there is a 50% chance that the economy will recover, and a 50% that it will not, what is the expected return on Stock Y for next year?
An investor is considering the purchase of 10-year U.S. Treasury bonds and plans to hold them to maturity. Federal taxes on coupons must be paid during the year they are received, and tax must also be paid on the capital gain realized at maturity (de..
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