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Suppose you are a regular subscriber to the Financial Times and are considering whether to renew your subscription for a single year or two years. If your cost of capital is 10%, purchasing a two-year subscription for $775 rather than a one-year subscription for $420 is an excellent opportunity, particularly if you expect the one-year subscription price to increase next year.
The owner of a farm just west of Oberlin has signed a contract to sell the farm one year from now for $1 million. However, the holder of the contract has come up with an offer to close the deal today for a price of $950,000. If the farmer's cost of capital is 10% a year, and the land would simply lie fallow at no cost to either party during the year, should the farmer sell now or wait a year?
Suppose the farmer in the previous question had the opportunity to work the land for the year if she doesn't sell now. Doing so allows her to increase her income at the end of the year by $150,000. Of course, this entails some out-of-pocket current expenses amounting to $85,000. Now what should the farmer do?
KADS, Inc., has spent $380,000 on research to develop a new computer game. The firm is planning to spend $180,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $48..
A common stock pays an annual dividend per share of $2.10. The risk-free rate is 7% and the risk premium for this stock is 4%. If the annual dividend is expected to remain at $2.10, what is the value of the stock?
A local finance company quotes an interest rate of 17 percent on one-year loans. So, if you borrow $31,000, the interest for the year will be $5,270. What interest rate would legally have to be quoted? What is the effective annual rate?
Custom Computers, Inc. assembles custom home computers. Annual demand for heat sinks is 5,200 units, the annual inventory cost rate is $3 per unit, and the cost to place an order is estimated to be $50. Lead time is 2 weeks. What is the economic or..
A fixed asset has an original cost of $32,000 and is three-fourths depreciated. The asset is sold for $10,000 – show how you derived your answer. What is the gain (+) or loss (-) on the sale of the asset. What amount is recorded in the CFO section of..
how you manage your cash or money on a day-to-day basis will impact whether your long-term financial objectives will be
Is there really any difference between the different ways one can mitigate exchange rate risk? If so, is one form of exchange rate risk mitigation superior to another?
How does a company manage positive and negative cash gap?
Tool Makers, Inc. uses tool and die machines to produce equipment for other firms. The initial cost of one customized tool and die machine is $850,000. This machine costs $10,000 a year to operate. Each machine has a life of 3 years before it is repl..
Capital Structure- Kirsten Neal is interested in purchasing a new house given that mortgage rates are at a historical low. Her bank has specified rules regarding an applicant’s ability to meet the contractual payments associated with the requested de..
Determine specific strategies to manage budgets within forecasts and Compare five to seven expense results with budget expectations, and describe possible reasons for variance
The present value of a given amount increases as the number of years over which it is to be discounted decreases. The higher the discount rate, the lower the present value of a given future cash flow.
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