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A project requires an initial investment of $200,000 and expects to produce a cash flow before taxes of 120,000 per year for two years (i.e., cash flows will occur at t = 1 and t = 2). The corporate tax rate is 30%. The assets will depreciate using the MACRS - 3-year schedule: (t = 1: 33%); (t = 2: 45%); (t = 3: 15%); (t = 4: 7%). The company's tax situation is such that it can use all applicable tax shields. The opportunity cost of capital is 12%. Assume that the asset can sell for book value at the end of the project. Calculate the NPV of the project (approximately). Please use the format NPV= PV of cash flows after tax+ PV tax shield - Investment.
Other things held constant, an increase in the cost of capital will result in a decrease in a project's IRR. ESOPs were originally designed to help improve worker productivity, but today they are also used to help prevent hostile takeovers. Market ri..
A stock is expected to pay $0.80 per share every year indefinitely. If the current price of the stock is $18.90, and the equity cost of capital for the company that released the shares is 6.4%, what price would an investor be expected to pay per shar..
Marketers are more concerned with pro-forma income statement than actual income statement. Marketers are more concerned with balance sheet. Marketers usually evaluate different alternatives based on their profitability.
Rick bought a bond when it was issued by Macroflex Corporation 14 years ago. The bond, which has a $1000 face value and a 10% coupon rate, matures in six years. Interest is paid annually; the next interest payment is scheduled for one year from today..
Which of the following statements about inflation’s effect on net present value (NPV) is correct? When the selling price and cost per unit are expected to increase at the same rate, forgetting to take inflation into account in a capital budgeting ana..
The Shome Corporation, a firm in the 34 percent marginal tax bracket with a 15 percent required rate of return or cost of capital, is considering a new project. The project involves the introduction of a new product. Working-capital requirements Ther..
Honda is considering bringing its new Honda NBox it makes for the Japanese market to the United States. Its closest competitor would be Daimler’s Smart car, which made a profit of $108.3 million on sales of $10.7 billion in the United States last yea..
Mounts Corporation produces and sells two products. In the most recent month, Product I05L had sales of $39,000 and variable expenses of $11,580. Product P42T had sales of $52,000 and variable expenses of $16,630. The fixed expenses of the entire com..
The Dart Company is financed entirely with equity. The company is considering a loan of $1.75 million. The loan will be repaid in equal principal installments over the next two years, and it has an interest rate of 8 percent. According to MM Proposit..
O.K., Inc. uses one-third debt and two-thirds common stock to finance their operations. The after-tax cost of debt is 4.5 percent and the cost of equity is 9 percent. The management of O.K., Inc. is considering a small project that they consider to b..
Assuming annual compounding, determine whether interest rate parity holds.- Assuming continuous compounding, determine whether interest rate parity holds and, if not, suggest a strategy.
You will research one publicly traded company.
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