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An investment of $1.5 million is made at time zero with annual revenues of $600,000 in year 1, growing at a rate of 15% annually over a seven-year horizon. Annual operating and maintenance costs are estimated at $150,000 per year increasing every year by $10,000 thereafter. The salvage value of the investment is $1 million at the end of year 7. There is uncertainty about the estimates of the revenues and the salvage therefore you are asked to perform a two-parameter sensitivity analysis (before tax) to determine the range of feasibility of the variation of those parameters. The company uses a MARR of 15%.
LilyMac Studios, a national chain of photography studios, is considering opening up a chain of coffee shop/art galleries. While the existing operations of the firm have a beta of 1.17, the new chain is expected to have a beta of 0.8. The expected mar..
Top hedge fund manager Diana Sauros believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $59. The stock will pay a dividend at year-end of $4.00. Assume that risk-free Treasury securities currently offer ..
Raul's friend wants to fo to business school. While his father will share some of the expenses, Zach will still needs to put in the rest of his own. But Zach has no money saved for it yet. According to him, it will take him $16,391 to complete the bu..
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..
A bond with a coupon rate of 6% makes semi annual coupon payments on January 15 and July 15 of each year. The Wall Street Journal reports the ask price for the bond on January 30 at 100:05. What is the invoice price of the bond? The coupon period has..
Reflecting on the various topics discussed throughout the course, describe one (1) concept that will be affected most by the latest developments in health reform.
Lang Industrial Systems Company ( LISC) is trying to decide between two different conveyor belt systems. System A costs $ 240,000, has a four- year life, and requires $ 75,000 in pretax annual operating costs. Whichever project is chosen, it will not..
Goodwin Technologies is a relatively young company. Goodwin has been widly successful, but it has yet to pay a dividend. An analyst has forecasted that Goodwin is likely to pay its first dividend three years from now. However, after five years, she e..
Which of the following are argued to be distinctive characteristics of the corporation?
In response to the same external forces, the return on one investment may increase while the return on another investment may decrease. Zero correlated assets reduce risk more than negatively correlated assets. Risk can be defined as uncertainty conc..
Which one of the following best matches the primary goal of financial management?
Why would some speculators with buy positions leave their positions unchanged or even increase their positions by purchasing more futures contracts in response to the central bank's intervention?
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