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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.
Ghost Rider Corporation has bonds on the market with 13 years to maturity, a YTM of 6.1 percent, and a current price of $959. What must the coupon rate be on the company’s bonds?
A firm is reviewing a project that has an initial cost of $25,000. The project will produce an annual cash inflows, starting with year 1, $4,000, $6,000,$9,300 and finally in year 4, $15,050. What is the profitability index if the discount rate is 5 ..
In his senior year at a major mid western university, Billy Wilson had been the third runner up for the fabled Heismann Trophy. The trophy goes to the outstanding football player in America and is presented annually by the New York Athletic Club. Cal..
What does it mean when cash flow from operations, investing activities, financial activities on a company's cash flow statement is negative? Is this bad news? Is it dangerous?
“Assume you have a collection of municipal bonds and corporate bonds of similar maturities and default risk (i.e. both sets of bonds carry a rating of “AA+” from Standard and Poor’s). Accordingly, a yield curve formed from municipal bonds will be hig..
A firm has a market value equal to its book value. Currently, the firm has excess cash of $1,400 and other assets of $3,500. Equity is worth $4,900. The firm has 700 shares of stock outstanding and net income of $1,450. The firm has decided to spend ..
Identifying and applying useful data and information and demonstrate logic to interpret data - Recognizing and discuss inferences and faulty logic.
List and explain the factors which affect a firm’s degree of transaction exposure. For each factor explain the desirable characteristics that would reduce transaction exposure?
Managers should make use of the interest tax shield if the firm has
First City Bank pays 7 percent simple interest on its savings account balances, whereas Second City Bank pays 7 percent interest compounded annually. If you made a $6,000 deposit in each bank, how much more money would you earn from your Second City ..
What is the change in the NVP of a one-year project if fixed cost are increased from $400 to $600, the form is profitable, has a 35% tax rate, and employs a 12% coast of capital?
Warrents give bond investors the chance to profit from the firm's upside potential, leading some to compare warrants to a long-term call option. However, some factors distinguish warrants from call options. Exercising warrants can lead to the dilutio..
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