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Relevant Cash flow scenario Assume you have just graduated from college with a degree in finance and you are trying to explain to your boss the importance of identifying and using the appropriate cash flows when you make financial decisions. He is considering investing in a project and he has identified the following cash flows and information that he considers relevant. Forecast net income for years 1 through 8 of $450,000. Initial Investment in equipment and facility of $2,200,000 Value of equipment and facility at project's termination $200,000. The equipment will be fully depreciated by the project's end. For simplicity assume equal amounts every year. The company's marginal tax rate is 15%. Your boss expects to allocate 20% of his time to the new project and he makes $250,000 per year. The company's required return on the project is 10%. Your boss has not included any additional funds for net working capital. Your boss is basing his forecasts on the results from a product test market that the firm paid $245,000 to have conducted.
Explain incremental cash flows to your boss and identify the main categories of the incremental cash flows? Identify the relevant cash flows in this project. Justify the answer. should you consider making adjustments for net working capital? what is the after-tax terminal value of the facility and equipment? Explain how the cash flows might differ if this were a replacement project?
Calculate the annual cash flows (annuity payments) from a fixed-payment annuity if the present value of the 20-year annuity is $1.8 million and the annuity earns a guaranteed annual return of 10 percent. The payments are to begin at the end of the cu..
Al is given a fifteen-year annuity with end-of-year payments. The first payment Al receives, precisely one year from the date he is given the annuity, is for $100, and then subsequent payments decrease by 4% annually.
Is there a relationship between compensation and higher levels of employee performance? Please explain "yes" or "no" providing 3 reasons to support your position. How does organizational market position influence compensation philosophy?
A call option on the stock of Bedrock Boulders has a market price of $8. The stock sells for $29 a share, and the option has a strike price of $24 a share. What is the exercise value of the call option?
Given the returns and probabilities for the three possible states listed here, calculate the covariance between the returns of Stock A and Stock B. For convenience, assume that the expected returns of Stock A and Stock B are 0.10 and 0.18, respective..
Calculate all four terms of the DuPont Identity and present the results but do not analyze the results. If you were the appropriate financial manager of one of the firms that you analyzed, what would be your observations and recommendations?
XYZ Company spent $750,000 to develop a microchip. The company spent an additional $200,000 for marketing. XYZ Company can manufacture the chip for $205 each in variable costs. What is the payback period of the project? What is the profitability inde..
Whiteside Corporation issues $500,000 of 9% bonds, due in 10 years, with interest payable semi annually. At the time of issue, the market rate for such bonds is 10%. Compute the issue price of the bonds.
Which of the following explains why most external finance is channeled through intermediaries? Select one: a. Transaction Costs b. Asymmetric Information c. Free-rider problem d. All of the above
What is the difference between the (ordinary) break-even point and the cash break-even point and which will be the greater? Pharmaceutical Bhd manufactures medical products which are sold to pharmacies and clinics. The average selling price of its fi..
Do you agree with King's belief that you need to create tension in order to have reform come about? Why or why not?
The values of outstanding bonds change whenever the going rate of interest changes. in general, short-term interest rates are more volatile than long-term interest rates. therefore, short-term bond prices are more sensitive to interest ratw changes t..
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