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The McGregor Whisky Company is proposing to market diet scotch. The product will first be test-marketed for two years in southern California at an initial cost of $500,000. This test launch is not expected to produce any profits but should reveal consumer preferences. There is a 60% chance that demand will be satisfactory. In this case McGregor will spend $5 million to launch the scotch nationwide and will receive an expected annual profit of $700,000 in perpetuity. If demand is not satisfactory, diet scotch will be withdrawn. Once consumer preferences are known, the product will be subject to an average degree of risk, and, therefore, McGregor requires a return of 12% on its investment. However, the initial test-market phase is viewed as much riskier, and McGregor demands a return of 40% on this initial expenditure. What is the PV of the diet scotch project? Ignore taxes.
The owners of a chain of fast-food restaurants spend $25000000 installing donut makers in all their restaurants. This is expected to increase cash flows by $11000000 per year for the next 5 years. The discount rate is 5.3%. What is the net present va..
Blues, Inc. is an MNC located in the U.S. Blues would like to estimate its weighted average cost of capital. On average, bonds issued by Blues yield 5.42%. Currently, T-bill rates are 0.32% (0.0032 in decimals). what is its (a) aftertax cost of debt..
ABC wants to raise $12 million from the sale of preferred stock. If the ABC wants to sell 1 million shares of preferred stock, what annual dividend will they have to promise if investors demand
Explain how each of the following affects corporate governance and whether the impact is positive or negative.
What type of analysis has the risk team performed and how do you arrive at this answer? If you were a board member, what issues might you have with this way of reporting VaR?
John and Mary are interested in passing the maximum amount to their grandchildren upon their deaths. Can they utilize portability for GST purposes to double the amount that can pass transfer tax free?
You are planning to save for retirement over the next 15 years. To do this, you will invest $1,000 a month in a stock account and $700 a month in a bond account. The return of the stock account is expected to be 12 percent, and the bond account will ..
Suppose that two firms, A and B, are considering the same project. The project is in the same risk class as firm A's overall operations. The project has an IRR of 13.0 percent. Firm A has a beta of 1.2, while firm B's beta is 0.9. The risk-free rate ..
Maggie's Muffins, Inc., generated $2,000,000 in sales during 2015, and its year-end total assets were $1,400,000. Also, at year-end 2015, current liabilities were $1,000,000, consisting of $300,000 of notes payable, $500,000 of accounts payable, and ..
Colasuonno Corporation has two divisions: the West Division and the East Division. The corporation's net operating income is $93,000. The West Division's divisional segment margin is $44,000 and the East Division's divisional segment margin is $174,6..
Consider three bonds with 5.3% coupon rates, all making annual coupon payments and all selling at a face value of $1,000. The short-term bond has a maturity of 4 years, the intermediate-term bond has maturity 8 years, and the long-term bond has matur..
Your boss makes you an offer: He will give you $3000 at the end of each year for the next six years,, if you agree to pay him back $2500 at the end of each of the following ten years. Should you accept if cost of funds is 2% compounding annually?
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