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The president's executive jet is not fully utilized. You judge that its use by other officers would increase direct operating costs by only $20,000 a year and would save $100,000 a year in airline bills. On the other hand, you believe that with the increased use the company will need to replace the jet at the end of three years rather than four. A new iet costs $1.1 million and (at its current low rate of use) has a life of six years:. Assume that the company does not pay taxes. All cash flows are forecasted in real terms. The real opportunity cost of capital is 8%. Should you try to persuade ‘the president to allow other officers to use the plane?
The preferred stock of gator industries sells for $35.66 and pays $2.74 per year in dividends. What is the cost preferred stock financing? How should this cost be incorporated into the NPV of the project being financed?
A company must make yearly payments starting at $100,000 and increasing by 6% every year for 10 years. Payments are due at the end of each year. They can invest in a portfolio of coupon-paying bonds that vary in term from 1 to 10 years (a total of 10..
Your firm has an average collection period of 39 days. Current practice is to factor all receivables immediately at a 2.00 percent discount. What is the effective cost of borrowing in this case?
Winter's Toyland has a debt-equity ratio of 0.72. The pre-tax cost of debt is 8.7 percent and the required return on assets is 16.1 percent. What is the cost of equity if you ignore taxes?
Suppose Klausenheimer, Inc. is considering a new project. The project alone will cost $50,000,000 and is expected to generate after-tax cash flows of $5,000,000, $6,000,000 and 7,000,000 during the first three years. Assuming Klausenheimer has a corp..
A put option on a stock with a current price of $36 has an exercise price of $38. The price of the corresponding call option is $2.70. According to put-call parity, if the effective annual risk-free rate of interest is 6% and there are four months un..
Verano Inc. has two business divisions a software product line and a waste water clean-up product line. The software business has a cost of equity capital of 10% and the waste water clean-up business has a cost of equity capital of 7%. Verano has 50%..
Explain the three different forms of the efficient markets hypothesis and discuss some of the implications of efficiency market theory for corporate financial policy.
Phillips Equipment has 80,000 bonds outstanding that are selling at par. Bonds with similar characteristics are yielding 6.75 percent. The company also has 750,000 shares of 7 percent preferred stock and 2.5 million shares of common stock outstanding..
Primrose Corp has $19 million of sales, $3 million of inventories, $2 million of receivables, and $3 million of payables. Its cost of goods sold is 70% of sales, and it finances working capital with bank loans at an 7% rate. By how much would pre-tax..
Future Generation Telecommunication Technology
A fund of $5000 is used to award a scholarship of $500 at the end of each six months for as long as possible. If the effective interest rate per 6 months is 7%, find the number of scholarships which can be awarded, and the amount left in the fund six..
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