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The Pierpont Company is thinking of building a plant to make trumpets. The plant and equipment will cost $1 million. It will last for five years and will have no salvage value at the end of that time. The costs of running the plant are expected to be $100,000 per year. The revenues from selling the trumpets are expected to be $375,000 per year. All cash flows occur at the end of the year. The firm uses straight line depreciation. Its corporate tax rate is 35 percent and the opportunity cost of capital for this project is 10 percent. The projected income statement for the project is as follows. Revenues $375,000 Operating Expenses -$100,000 Net Operating Income $275,000 Depreciation -$200,000 Taxable Income $75,000 Taxes -$26,250 Net Income $48,750 Should the firm build the plant?
A US firm has exported merchandise to Germany, invoiced in one million euro and payable in six months. A firm wish is to use "money market hedging" against its transaction exposure. Describe a sequence of transactions for hedging (numerical answer is..
The Pioneer Petroleum Corporation has a bond outstanding with an $50 annual interest payment, a market price of $830, and a maturity date in five years.
Ignoring the effect of taxes, what is the accounting break-even quantity? What is the cash break-even quantity?
At the beginning of the year, a firm had current assets of $5,500 and current liabilities of $5,700. What is the change in net working capital?
Once an observation is identified by an internal auditor as a fraudulent act committed by senior mgt. resulting in an amount considered insignificant and trivial, it should be: reported to senior management. reported to the independent outside audito..
Find the target Sales revenue and net profit margin (=Net income / Sales revenue) that provides the target ROE.
Assume that no special building or site preparation is required. Use the equipment component of the CE index to update costs.
Using the maximum ratios for a conventional mortgage. - How big monthly payments could the Danforth family afford if their gross (before-tax) monthly income amounted to $4,000?
What is the current yield on the bonds? The YTM? The effective annual yield?
Suppose you are a U.S. investor who is planning to invest $125,000 in Japan. What is your total return on this investment?
An example of a capital market security would be:
X Company has a dividend payout ratio of 40% (which means it has a retention ratio of 60%). If Return on Earnings is 6%, what is the expected growth rate for dividends?
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