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You have developed a new a new recreational tennis racket with tennis great Jimmy Connors. You have paid Jimmy Connors for his involvement in the project $250,000. The racket is state of the art and guaranteed to correct any backhand. You now need to decide if you want to proceed with mass marketing of this racket. You estimate the sales price of the new racket to be $400 per racket and sales volume to be 1,000 units in year 1, 1,250 units in year 2; and 1,325 units in year 3. The project has a three year life. Variable costs amount to $225 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $165,000 in assets which will be depreciated straight line to zero over the three year project life. The actual market value of these assets at the end of year three is expected to be $35,000. NWC requirements at the beginning of each year will be 20 percent of the projected sales during the coming year. The tax rate is 34 percent and the required return on the project is 10 percent.
a) What will the annual incremental cash flows for the project be?
b) Using NPV analysis should the project be undertaken? Explain.
Farmers Delight Corporation reported sales of $350,000 in June, $380,000 in July, and $390,000 in August. The forecasts for September, October, and November are $385,000, $418,000, and $429,000 respectively. Wages and salaries are 12% of the previous..
Consider the following table for the total annual returns for a given period of time. Series Average return Standard Deviation Large-company stocks 11.7 % 20.6 % Small-company stocks 16.4 33.0 Long-term corporate bonds 6.3 9.6 Long-term government bo..
Cost of Equity with and without Flotation Javits & Sons' common stock currently trades at $28.00 a share. It is expected to pay an annual dividend of $1.00 a share at the end of the year (D1 = $1.00), and the constant growth rate is 3% a year. What i..
Mitzi's AGI for the year is $33,000. None of the medical costs are reimbursed by insurance. After considering the AGI floor, Mitzi's medical expenses total: Sidney purchased land in 2003 for $35,000 that she held as capital asses. This year, she cont..
Johnson Industries sells on terms of 3/10, net 30. Total sales for the year are $912,500. Forty percent of customers pay on the 10th day and take discounts; the other 60% pay, on average, 40 days after their purchases. What is the days sales outstand..
Twenty years ago JeffCo Inc. issued thirtyminus−year ?9% annual coupon bonds with a? $1,000 face value each. Since? then, interest rates in general have risen and the yield to maturity on the? firm's bonds is now? 11%. Given this? information, what i..
Finance is a very challenging and rewarding field. It is exciting area because financial managers are given the responsibility to plan the future growth of the firm which can greatly affect the community in which it is doing business.
You have $122,000 to invest in a portfolio containing Stock X, Stock Y, and a risk-free asset. You must invest all of your money. Your goal is to create a portfolio that has an expected return of 14 percent and that has only 72 percent of the risk of..
Mario's Home Systems has sales of $2,840, costs of goods sold of $2,180, inventory of $508, and accounts receivable of $432. How many days, on average, does it take Mario's to sell its inventory?
An industrial firm can purchase a special machine for $20,000. A down payment of $2,000 is required and the balance can be paid in 5 equal year-end installments plus 7% interest on the unpaid balance. As an alternative the machine can be purchased fo..
Compute the payback period for product X and product Y. Based on the payback period, which alternative would you select? (Assume a $200,000 investment)
Hinkle Inc. expects the first three years of a proposed project would have cash flows of $320,000 a year. If Hinkle uses a discount rate of 13%, about what is the present value of the expected yearly cash flows?
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