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KADS, Inc. has spent $500,000 on research to develop a new computer game. The firm is planning to spend $250,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $55,000. The machine has an expected life of three years, an estimated $80,000 resale value, and falls under the MACRS 7-year class life. Revenue from the new game is expected to be $650,000 per year, with fixed costs of $300,000 per year. The firm has a tax rate of 30 percent, an opportunity cost of capital of 17 percent, and it expects net working capital to increase by $150,000 at the beginning of the project. What will the cash flows for this project be?
Explain the key objective of corporate financial management and why this might not be the same as maximising accounting profit and describe the principal characteristics of primary and secondary capital markets.
Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with a retirement income of $34,000 per month for 20 years, with the first payment received 30 years and 1 month from now.
Mr. Art Deco will be paid $100,000 one year hence. This is a nominal flow, which he discounts at an 8% nominal discount rate: PV = 100,000 = $ 92,593 1.08 The inflation rate is 4%. Calculate the PV of Mr. Deco’s payment using the equivalent real cash..
Debt capacity is often given as a reason for the value of the stock falling when equity is issued. The reason for this is:
Suppose that observations on a stock price (in $) at the end of each of 15 consecutive days are as follows: Estimate the daily volatility
What is the intrinsic value of the option and what is the option's time premium at this price - What is the current selling price for a) and b)?
Although NOLs represent a potential source of value, their use must be monitored carefully to realize their full value resulting from the potential for deferring income taxes. The sale of assets by a target firm will result in a taxable gain if the f..
A company’s financial statements consist of the balance sheet, income statement, and statement of cash flows. Describe what each statement tells us and their limitations. What is the purpose and importance of financial analysis?
Linus is 18 years old now, and is thinking about taking a 5-year university degree. The degree will cost him $25,000 each year. After he's finished, he expects to make $50,000 per year for 10 years, $75,000 per year for another 10 years, and $100,000..
Define Indifference Curve and what are the main properties of Indifference Curve? By using Indifference Curve analysis explain how the consumer attains maximum level of satisfaction?
The McKeegan Corporation has two different bonds currently outstanding. Bond M has a face value of $11,000 and matures in 20 years. The bond makes no payments for the first 8 years, then pays $800 every six months over the subsequent 4 years, and fin..
A company currently pays a dividend of $2.25 per share (D0 = $2.25). It is estimated that the company's dividend will grow at a rate of 20% per year for the next 2 years, then at a constant rate of 6% thereafter.
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