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National foods is considering producing a new gelatin dessert, Tasty, of which management believes consumers will by $15,000 units each year for 3 years. The price of tasty will be $2.00 per unit at t=0 and increases at 7% per year. New equipment to produce tasty will cost $45,000 with no salvage value, while land will be bought at t=0 for $100,000 and sold at t=3 for $100,000. Nation expects production cost to be $12,000 each year. In addition, overheads and sales expenditures are expected to be $5,000 in the first year and then are expect to increase at 5% per year. The firm faces a 40% income tax rate and uses straight-line deprecation. The firm’s stock price is $25 per share with 16 million shares outstanding. Its beta equity is 1.18. It also has 220 million debt outstanding. The only publicly traded bond it has is a two-year, $10,000 bond with semi-annual coupons of 5.6% and a price of $9779. The risk free rate is 3% and market-risk premium is 6%. All cash flows occur at year’s end. The firm has other profitable ongoing operations
A. Give a table of cash flows with one column for each years end
B. What is the firms weighted average cost of capital
C. What is the NPV of the project calculated using the weighted average cost of capital.
You currently have a one-year-old loan outstanding on your car. You make monthly payments of $350. You have just made a payment. The loan has four years to go (i.e., it had an original term of five years.) Show the timeline from your perspective. How..
A project requires an initial cash outlay of $40,000 and has expected cash inflows of $12,000 annually for 7 years. The cost of capital is 10%. What is the project’s discounted payback period? Show your work
In its 2009 annual report, the Coca-Cola Company reported sales of $30.99 billion for fiscal year 2009 and $31.94 billion for fiscal year 2008. The company also reported operating income (roughly equivalent to EBIT) of $8.23 billion in 2009 and $8.45..
Maggie’s Muffins, Inc., generated $5,000,000 in sales during 2013, and its year-end total assets were $2,500,000. Also, at year-end 2013, current liabilities were $1,000,000 consisting of $300,000 of notes payable, $500,000 of accounts payable, and $..
What, if any, is the correlation between income and happiness? What are some common financial concerns of Americans today? What do happy people do differently?
Assume a $1,000 face value bond has a coupon rate of 8.5 percent paid semiannually and has an eight-year life. If investors are willing to accept a 10 percent rate of return on bonds of similar quality, what is the present value or worth of this bond..
You have been hired as a financial consultant to help improve the performance of Blue Star Inc., which is highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of the analysis, you want to determine the f..
Andrea Sampri Sporting Goods Store purchases sporting goods merchandise on account from various vendors. The terms of the purchase are 2/10, n/30. The delivery date and invoice date is May 15, 2015. The amount of the total amount of the invoice is $1..
Microtech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect Microtech to begin paying dividends, beginning with a dividend of $1.25 coming 3 years from toda..
Howell Petroleum is considering a new project that complements its existing business. The machine required for the project costs $3.87 million. The marketing department predicts that sales related to the project will be $2.57 million per year for the..
Scott is buying $5,000 worth of a stock with $4,000 in cash plus a $1,000 margin loan. If you constructed a balance sheet reflecting this transaction, the total assets would be:
A factory costs $800,000. You reckon that it will produce an inflow after operating costs of $170,000 a year for 10 years. If the opportunity cost of capital is 14%, what is the net present value (NPV) of the factory?
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