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Your company has spent $220,000 on research to develop a new computer game. The firm is planning to spend $42,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $5,200. The machine has an expected life of 7 years, a $27,000 estimated resale value, and falls under the MACRS 10-Year class life. Revenue from the new game is expected to be $320,000 per year, with costs of $120,000 per year. The firm has a tax rate of 40 percent, an opportunity cost of capital of 13 percent, and it expects net working capital to increase by $52,000 at the beginning of the project. What will be the net cash flow for year one of this project?
A firm has debt of $7,000, equity of $12,000, a leveraged value of $8,900, a cost of debt of 7%, a cost of equity of 14%, and a tax rate of 30%. What is the firm's weighted average cost of capital?
Assume that the Provident Health System, a for-profit hospital, has $1 million in taxable income for 2008, and its tax rate is 30 percent. A. Given this information, what is the firm’s net income? B. Suppose that the hospital pays out $300,000 in div..
Love Co. (a SWISS firm) is planning to invest CHF 2.5 million in a project in Denmark that will exist for one year. Its required rate of return on this project is 18%. It expects to receive cash flows of 2 million euros in one year from this project...
Percy Motors has a target capital structure of 40% debt and 60% common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 11%, and its tax rate is 40%. Percy's CFO estimates that the company's WACC is 13.40%...
The Chung Chemical Corporation is considering the purchase of a chemical analysis machine. Although the machine being considered will result in an increase in earnings before interest and taxes of $35,000 per year, it has a purchase price of $100,000..
What is the relationship between the price of a financial asset and the return that investors require on that asset, holding other factors constant?
3 years ago, Mr. Jones deposited $5,000 in Regional Bank’s money market account, which offers to pay 8 percent interest compounded annually. At the same time, Mrs. Jones deposited $5,000 in CBS Bank’s money market account, which pays interest of 7.9 ..
Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 22 percent for the next three years, with the growth rate falling off to a constant 5 percent thereafter. If the required return is 12 percent, and the company just paid a di..
The Taylors have purchased a $190,000 house. They made an initial down payment of $20,000 and secured a mortgage with interest charged at the rate of 7%/year on the unpaid balance. What is their equity (disregarding appreciation) after 5 years? After..
STARZ INC pays a constant dividend of $16 for next 11 years then will stop paying dividends forever. If investors require a return of 14.5% on this stock, what is the value of the STARZ stock?
To best understand a proposed positive net present value project, managers should:
You have been promoted as your firm's new president. Naturally, you want to strengthen the company's financial position. Which of the following actions would make it FINANCIALLY stronger?
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