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Lasik Vision Inc. recently analyzed the project whose cash flows are shown below. However, before Lasik decided to accept or reject the project, the Federal Reserve took actions that changed interest rates and therefore the firm's WACC. The Fed's action did not affect the forecasted cash flows. By how much did the change in the WACC affect the project's forecasted NPV? Note that a project's NPV can be negative, in which case it should be rejected. Old WACC: 8.00% New WACC: 11.25% Year 0 1 2 3 Cash Flows -$1,000 $410 $410 $410 Answers: A. -$59.03 B. -$56.08 C. -$53.27 D. -$50.61 E. -$48.08
The construction of a new runway at an airport will cost $30 million, to be paid with capital development bonds over a 20-year period. The runway is expected to decrease the average aircraft delay from 9 to 5 min. The average annual demand is expecte..
Goodwin Technologies, a relatively new company, has been wildly successful but has yet to pay a dividend. An analyst forecasts that Goodwin is likely to pay its first dividend three years from now. "Investors prefer the deferred tax liability that ca..
Fido's Dog Spa's financial statements show that its total assets equal $100,000, its return on assets is 3% and its return on equity is 5%. Compute the company's net income. What portion of total assets is financed with dept?
Advances in _____ have opened many new markets for small businesses, allowing them to more effectively expand their businesses and marketing efforts into new markets.
Mess man Manufacturing will issue common stock to the public for $40. The expected dividend and growth in dividends are $3.50 per share and 3%, respectively. If the flotation cost is 9% of the issue's gross proceeds, what is the cost of external equi..
A bond matures in 30 years, has a 20 year duration and a yield to maturity of 9.32%. The change in the level of the market interest rate is 0.47%. What is the modified duration and the percentage change in price? What is the tax-equivalent yield of a..
You are considering expanding your product line that currently consists of skateboards to include gas-powered skateboards, and you feel you can sell 8,000 of these per year for 10 years (after which time this project is expected to shut down with sol..
A 25-year maturity bond has a 9% coupon rate, paid annually. It sells today for $1,027.42. Calculate the annual return for the 25-year maturity bond over the next five years
Find Internal Rate of Return. Initial outlay is $469,000. The project will produce the following after tax cash inflow
Replicating portfolios: Stock ABC is currently trading at $20. There is a 60% real-world probability that six months in the future the price will go up to $23. There is a 40% real-world probability that six months in the future the price will go down..
Calculate the net present value (NPV) for the following twenty-year projects. Comment on the acceptability of each. Assume that the firm has an opportunity cost of 14%.
You sold 800 shares short of Rockwool Inc. at $54 a share. The price of the stock subsequently fell to $38 before rising to $62 at which time you covered the position (that is, closed the short position). What was the percentage gain or loss on this ..
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