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The Ewert Exploration Company is considering two mutually exclusive plans for extracting oil on property for which it has mineral rights. Both plans call for the expenditure of $10.5 millionto drill development wells. Under Plan A, all the oil will be extracted in 1 year, producing a cash flow at t _ 1 of $13.5 million, while under Plan B, cash flows will be $2 millionper year for 20 years.a. What are the annual incremental cash flows that will be available to Ewert Exploration if it undertakes Plan B rather than Plan A? (Hint: Subtract Plan A's flows from B's.)b. If the firm accepts Plan A, then invests the extra cash generated at the end of Year 1, what rate of return (reinvestment rate) would cause the cash flows from reinvestment to equal the cash flows from Plan B?c. Suppose a company has a cost of capital of 10 percent. Is it logical to assume that it would take on all available independent projects (of average risk) with returns greater than 10 percent? Further, if all available projects with returns greater than 10 percent have been taken, would this mean that cash flows from past investments would have an opportunity cost of only 10 percent, because all the firm could do with these cash flows would be to replace money that has a cost of 10 percent? Finally, does this imply that the cost of capital is the correct rate to assume for the reinvestment of a project's cash flows?d. Construct NPV profiles for Plans A and B.
Robin sold 800 shares of a non-dividend paying stock this morning for a total of $29,440. She had buy these shares on margin twelve months ago at cost per share of $35.
Discuss and explain simple interest and compound interest. Describe the difference between each.
Lee purchased a stock one year ago for $28. The stock is now worth $30, and the total return to Lee for owning the stock was 0.40. What is the dollar amount of dividends that he received for owning the stock during the year?
What are the four major provisions of the Clayton Act and what types of activities do these provisions prohibit? List all four and describe the activities each prohibits.
The following information refers to a six-month call option on the stock of XYZ, Inc.
A firm is reviewing a project that has an initial cost of $71,000. The project will produce annual cash inflows, starting with year 1, of $8,000, $13,400, $18,600, $33,100, and finally in year 5, $37,900. What is the profitability index if the dis..
Your brother has asked you for a loan and has promised to pay back $7,750 at the end of three years. If you normally invest to earn 6 percent per year, how much will you be willing to lend to your brother?
The new clubs will also require an increase in net working capital of $1,300,000 that will be returned at the end of the project. The tax rate is 32 percent, and the cost of capital is 10 percent.
You are analyzing a company that has cash of $11,200, accounts receivable of $27,800, fixed assets of $124,600, accounts payable of $31,300, and inventory of $56,900. What is the quick ratio.
I need yearly reports for a company which are for last 4 years starting 2005 or 2004 provided no major sale or acquisition or merger has taken place in the last four year period.
The firm has a pre-tax cost of debt of 8.6 percent and a cost of equity of 13.7 percent. The debt-equity ratio is .0.65 and the tax rate is 35 percent. What is the net present value of the project?
If Fa Ma issued newsecurities in the same proportion as its target capital structure, what is the company's target debt-equity ratio?
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