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Your firm is contemplating the purchase of a new $565,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $57,000 at the end of that time. You will be able to reduce working capital by $72,000 (this is a one-time reduction). The tax rate is 30 percent and the required return on the project is 16 percent. If the pretax cost savings are $213,000 per year, what is the NPV of this project? If the pretax cost savings are $163,000 per year, what is the NPV of this project? At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?
Suppose you borrowed $15,000 at a rate of 8.5% and must repay it in 5 equal instalments at the end of each of the next 5 years. How much would you still owe at the end of the first year, after you have made the first payment?
JPix management is considering a stock split. JPix currently sells for $65 per share, and a 3-for-2 stock split is contemplated. What will be the company's stock price following the stock split assuming that the split has no effect on the total marke..
Several years ago, Rolen Riders issued preferred stock with a stated annual dividend of 11% of its $100 par value. Preferred stock of this type currently yields 8%. Assume dividends are paid annually. What is the value of Rolen's preferred stock?
What is the firm's cost of equity? If the following is true:
If the expected constant growth rate of a share of common stock's dividends and per share price decreases, then according to the discounted cash flow approach to valuation, the price of the stock should:
Stock A has a beta of .2, and investors expect it to return 8%. Stock B has a beta of 1.8, and investors expect it to return 12%. Use the CAPM to find the expected rate of return and the market risk premium on the market
Compute the unit sales price at which Blake must sell its product in the current year in order to earn a budgeted target profit of £200,000.
Wilber Corporation is considering replacing a machine. The replacement will cut operating expenses by $24,000 per year for each of the 5 years the machine is expected to last. Although the old machine has a zero book value, it has a remaining useful ..
Smith Corporation reported net income of $200,000 for 2008. Its EBITDA amounted to $800,000 and interest expense was $100,000. Smith‘s corporate income tax rate was 30%. Calculate the amount of depreciation expense that was reported in its income sta..
Describe the major trends or observations that the income statement analysis highlights, and provide an opinion on what this means to the company. Describe the major trends or observations that the balance sheet analysis highlights, and provide an op..
Assume that the firm's Total Asset Turnover will average 1.0 in each of the five years and Equity Financing percentages will remain constant at 50 percent. The firm projects Reported Income Index values to be 0.85 each year.
Terminal Value plays an important role in enterprise valuation. What factors affect the estimate of Terminal Value? How sensitive enterprise valuation is to Terminal value?
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