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A Virginia-based entrepreneur believes that joining Kinloch Golf Club will allow for profitable networking opportunities, thus improving her business. But she wonders if it is worth the costs of joining. If she joins, she thinks that her company’s free cash flow to equity will increase 11% a year for 20 years, when she plans to retire and dissolve the business. If she does not join, she thinks that free cash flow will only increase 5% per year for 20 years. Assume the initiation fee at Kinloch is? $150,000, with annual dues of $15,000 (due at the end of each year). The entrepreneur had free cash flow of $50,000 last year (year 0), and the appropriate discount rate is 15%. Ignore any utility she receives from the enjoyment of golfing, the terminal value of her business, taxes, and assume the Kinloch membership is non-equity (no residual? value). From a pure economic standpoint, is this a good investment for her business?
A specialty shop in a local mall currently has a lease that calls for payments of $1,000 at the end of each of the next 60 months. The landlord has offered a new 5-year lease that calls for zero rent for 6 months, then rental payments of $1,050 at th..
Filer Manufacturing has 8.8 million shares of common stock outstanding. The current share price is $58, and the book value per share is $3. Filer Manufacturing also has two bond issues outstanding. Suppose the company’s stock has a beta of 1.1. The r..
Cyberdyne Systems is issuing a series of zero coupon bonds to raise? $500M to fund research and development at its Skynet division. Each bond will have a face value of ?$1,000 and will mature in 55 years. The yield on the bond is 33?%. What is the fa..
Southern Alliance Company needs to raise $30 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. What is the true initial cost figure Southern should u..
As port of her analysis, Jones also takes a look at one of Primo’s global funds. In this particular portfolio, Primo is invested 75% in Dutch stocks and 25% in British stocks. The benchmark invested 50% in each—Dutch and British stocks. Calculate the..
A bond with annual coupon rate of 5.10% and price of $1,090 just yesterday paid a coupon. A total of 23 coupons remain to be paid. Suppose you buy the bond at today's price, hold it and receive 8 coupons
Sally Johnson loaned a friend $10,000 at 15% interest, compounded annually. The loan will be paid in five equal end-of-year payments. Sally expects the inflation rate to be 12%. After taking inflation into account, what rate of return is Sally receiv..
Union Brick Inc. (UBI) has a total market value of $200 million, consisting of 2 million shares of common stock selling for $50 per share and $100 million of 10 percent perpetual bonds currently selling at par. What is UBI's weighted average cost of ..
You must evaluate a proposal to buy a new milling machine. The base price is $117,000, and shipping and installation costs would add another $13,000. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $46,800. What ..
Bond J has a coupon rate of 4.2 percent. Bond S has a coupon rate of 14.2 percent. Both bonds have ten years to maturity, make semiannual payments, and have a YTM of 9.4 percent. Requirement 1: If interest rates suddenly rise by 2 percent, what is th..
The NOI for a property is expected to be $100,000 in year 1 and increase 3 percent per year over a five-year holding period. The property value is expected to increased by a total of 15 percent over the same period. Investors require a 12 percent ove..
Why will the initial outlay be different? Explain how Nike can conduct multinational capital budgeting in a manner that will achieve its objective.
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