Dixie Dynamite Company is evaluating two methods of blowing up old buildings for commercial purposes over the next five years. Method one (implosion) is relatively low in risk for this business and will carry a 11 percent discount rate. Method two (explosion) is less expensive to perform but more dangerous and will call for a higher discount rate of 15 percent. Either method will require an initial capital outlay of $90,000. The inflows from projected business over the next five years are given next. Years Method 1 Method 2 1 $ 31,600 $ 22,800 2 36,800 24,800 3 45,000 34,300 4 36,000 32,400 5 22,200 71,700 Use Appendix B for an approximate answer but calculate your final answers using the formula and financial calculator methods. a. Calculate net present value for Method 1 and Method 2. (Do not round intermediate calculations and round your answers to 2 decimal places.) Net Present Value Method 1 $ Method 2 $ b. Which method should be selected using net present value analysis? Method 1 Method 2 Neither of these

Describe the concept of incremental cash flows : Eureka Bottling Company was established in 1992 by Josie Smith. The company was extremely successful at the beginning of the 21st century, but sales have waned since then. In an attempt to rejuvinate EBC's sales, Ms. Calculate the weighted average co.. |

What is the percentage price change of these bonds : Bond J has a coupon rate of 5 percent and Bond K has a coupon rate of 11 percent. Both bonds have 18 years to maturity, make semiannual payments, and have a YTM of 8 percent. What if rates suddenly fall by 2 percent instead? If interest rates suddenl.. |

Project will produce no cash flows for the first two years : EEG, Inc. is considering a new project that will require an initial cash investment of $388,000. The project will produce no cash flows for the first two years. The projected cash flows for years 3 through 7 are $69,000, $88,000, $125,000, $140,000, .. |

Cash budget to determine key methods : From the scenario, analyze TFC’s cash budget to determine key methods in which the budget may be optimized (e.g., by renegotiating terms and conditions on some of its payables, etc.). If you believe that there is room for improvement, recommend key s.. |

Using net present value analysis : Dixie Dynamite Company is evaluating two methods of blowing up old buildings for commercial purposes over the next five years. Method one (implosion) is relatively low in risk for this business and will carry a 11 percent discount rate. Method two (e.. |

Capital asset pricing model-dividend valuation model : Eaton Electronic Company’s treasurer uses both the capital asset pricing model and the dividend valuation model to compute the cost of common equity (also referred to as the required rate of return for common equity). Assume: Rf = 6 % Km = 9 % β = 1... |

The fair present value of the treasury security : Explain what a STRIP is. The total sale proceeds from selling the stepped components of a Treasury security can sometimes be greater than the fair present value of the Treasury security. Why might this happen? |

Would increase the speed of bottling and save money : The Pan American Bottling Co. is considering the purchase of a new machine that would increase the speed of bottling and save money. The net cost of this machine is $72,000. The annual cash flows have the following projections. Use Appendix B and App.. |

Calculate the weighted cost of each source of capital : Northwest Utility Company faces increasing needs for capital. Fortunately, it has an Aa3 credit rating. The corporate tax rate is 30 percent. Northwest’s treasurer is trying to determine the corporation’s current weighted average cost of capital in o.. |

## Excel spreadsheet detailing the cost of each scenarioCreate an Excel spreadsheet detailing the cost of each scenario, and embed it into a Word document. Provide your recommendations in the Word document as well. |

## College sophomore majoring in businessLauren is a college sophomore majoring in business. This semester Lauren is taking courses in accounting, economics, management information systems, public speaking, and statistics. The sizes of these classes are, respectively, 340, 60, 35, 70, and 7.. |

## Simple interest on its investment accountsFirst Simple Bank pays 9 percent simple interest on its investment accounts. If First Complex Bank pays interest on its accounts compounded annually, what rate should the bank set if it wants to match First Simple Bank over an investment horizon of 1.. |

## Assume that your required rate of return-stream of cash flowAssume that your required rate of return is 12% and you are given the following stream of cash flows |

## Time value of money-purchase business with cash flowsYou want to purchase a business with the following cash flows: How much would you pay for this business today assuming you need a 14% return to make this deal? |

## Find the maximum shutdown costs you could incurYou are getting ready to start a new project that will incur some cleanup and shutdown costs when it is completed. The project costs $5 million upfront and is expected to generate $2 million per year for ten years and then have some shutdown costs in.. |

## Explain the key factors that should influence her decisionLisa Taylor is considering whether she should invest some extra money in a mutual fund or an ETF. Explain the key factors that should influence her decision. |

## Equal weighting scheme to an optimal weighting schemeAn investor has designed a risky portfolio based on two stocks, A and B. The standard deviation of return on stock A is 20% while the standard deviation on stock B is 30%. The correlation coefficient between the return on A and B is 0.25. If the inve.. |

## Considering investing in one of two economiesYou are a risk-averse investor who is considering investing in one of two economies. The expected return and volatility of all stocks in both economies is the same. In the first economy, all stocks move together in good times all prices rise together.. |

## Debt-equity ratio-what is the amount of the net incomeProfessor Proton's Lab Supply Corp. has a debt-equity ratio of 57 percent, a total asset turnover of 1.12, and a profit margin of 4.9 percent. The total equity is $511,640. What is the amount of the net income? Round to the nearest dollar. |

## What is the addition to retained earningsChevelle, Inc. has sales of $487,000 and costs of $394,500. The depreciation expense is $43,800. Interest paid equals $18,200 and dividends paid equal $6,500. The tax rate is 35 percent. What is the addition to retained earnings? |

## Effective long term planningACME Refining is known for effective long term planning. its major facility, #1, will be decommissioned beginning in 25 yrs. the cost for decommissioning will begin, at the end of 25 yrs, with a cost of 6.5 million, and this cost increases by7% each .. |

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