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You are considering a new product launch. The project will cost $925,000, have a six-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected to be $1,800,000; variable cost per unit will be 60% of sales; and fixed costs will be $610,000 per year. The required return on the project is 15 percent, and the relevant tax rate is 35 percent. The unit sales, variable cost, and fixed cost projections given above are probably accurate to within ±10 percent. What is the NPV of the worst case scenario? What is the sensitivity of NPV to one dollar changes in variable cost? If the Standard Deviation of Revenue is 1,000,000, what is the standard deviation of NPV?
Sara owns 160 acres of farmland worth $800,000. She inherited the land from her father 30 years ago when it was worth $200,000. Her married son would like to buy the land, but has limited funds. He proposes buying the land on a contract for deed, pay..
Two alternatives are suggested for improvement to a power generation plant. Alternative A costs $60,000 and provides yearly benefit of $16,000. Alternative B requires $84,000 of initial cost. However, it will yield benefits in the order of $22,000 pe..
A firm issued a callable bond 2 years ago. The bond's face value is $1 million. This bond now has 6 more years to mature but can be called at this time. The company is considering refinancing this bond. Total flotation cost at the time of issue was $..
A portfolio is comprised of two stocks, C and D. The expected return of the portfolio is 12%, the expected return of the market is 10%, and the risk free rate is 1.5%.Stock C’s beta is 1.2 and Stock D's beta is 0.9. What are the weightings of Stocks ..
If the corporate form of business organization has so many advantages over the sole proprietorship, why is it so common for small businesses to initially be formed as sole proprietorships?
Explain the three alternative current operating assets financing policies in details. In your opinion, what is the best strategy for management with regard to financing current operating assets? Does the answer vary by industry? Does the answer vary ..
part a an issue that attracts debate in relation to corporate governance is whether there should be a requirement that
Dahlia Manufacturing has the following two possible projects. The required return is 10 percent. Year Project Y Project Z 0 –$27,400 –$54,000 1 13,400 20,000 2 11,800 25,000 3 14,200 18,000 4 9,800 23,000 required: (a) What is the profitability index..
Which one of the following statements is correct regarding the use of probability distributions?
Both Bond Sam and Bond Dave have 6 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has four years to maturity, whereas Bond Dave has 19 years to maturity. If interest rates suddenly rise by 2 percent, what is the perc..
Assume that the returns from an asset are normally distributed. The average annual return for this asset over a specific period was 17.5 percent and the standard deviation of those stocks in this period was 43.89 percent. What is the approximate prob..
There is an ongoing debate about the cost-benefit relationship of internal controls and their ethical implications. Find one recent news article (published within the past three years) relating to internal controls over cash. Search Web sites like th..
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