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Sales from the contract are forecast at $380,000 each year. Variable costs are estimated at $250,000 the first year, and Jo believes they will decrease at the rate of $5000 per year, as they become expert in growing the new items in the new greenhouses.
Incremental variable overhead for the new space is expected to be $30,000 per year but when the total overhead is re-allocated (based on square feet under glass) the new production will be charged $45,000 per year.
Upon completion of the 5-year contract, Jo believes she can either obtain another contract from this customer, obtain a similar contract from another grocery chain, use the project’s assets to meet increased demand for herbs from current customers of the original operation, or dispose of the project’s assets. She believes the land can be sold for what was paid for it and each greenhouse is expected to have a market value of $40,000 at the end of the 5-year contract. This decision will be made early enough in the fifth year of the contract to dispose of the project’s assets in that year.
The state tax rate is 11%. Jo uses an after-tax MARR of 12%.
Horse and Buggy Inc. is in a declining industry. Sales, earnings, and dividends are all shrinking at a rate of 15% per year. What price do you forecast for the stock one year from now? What is the cost of capital on the stock?
You want to invest in five-year U.S. Treasury notes. Unfortunately, you believe that yields will decline and prices will rise for five-year Treasury notes. Review futures in Treasury notes and set up a strategy so you can benefit from the rise in Tre..
The manager of a $30 million bond portfolio has a target duration of 13 years for a portfolio with a current duration of 18 years. The manager can add zero coupon bonds with 15 years to maturity, perpetuities with a 15% YTM, or both to the portfolio ..
If asset A has a standard deviation of .2 and asset B has a standard deviation of .2, then any portfolio that involves positive investment in both asset A and asset B will also have a standard deviation of .2. For most firms, market value leverage is..
Provide common size analysis of your company's income statement and balance sheet for the 2 most recent years (must be done using Excel with formulas).
Compute the gross profit margin ratio, the return on equity and the return on assets, rounding calculations to two decimal places and does the firm have positive or negative financial leverage? Briefly explain.
Combined Communications is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 24 percent a year for the next 4 years and then decreasing the growth rate to 6 percent per year. The company just paid ..
The expected return on a security given two unequal states of the economy:
Formula of Interest expense EBIT divided by Interest expense but this does not seem correct -
You take out an amortized loan for $10,000. The loan is to be paid in equal instalments at the end of each of the next 5 years. The interest rate is 8%. Construct an amortization schedule.
How we measure risk is related to our perspective. The president of the company would look at the correlation between projects which is measured by the correlation coefficient. The shareholder would measure risk by looking at Beta. While the project ..
Perry's Pizzeria issued 21-year annual coupon bonds one year ago at a coupon rate of 7 percent. If the YTM on these bonds is 8.91 percent, what is the current bond price?
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