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You are considering a new product launch. The project will cost $960,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 240 units per year; price per unit will be $25,000; variable cost per unit will be $19,500; and fixed costs will be $830,000 per year. The required return on the project is 15 percent, and the relevant tax rate is 35 percent. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within ±10 percent. What are the best-case and worst-case values for this project? What are the best-case and worst-case scenarios? Calculate the sensitivity of your base-case NPV to changes in fixed costs. What is the accounting break-even level of output for this project?
The legal fees were $152,000, printing costs were $56,000, and all the other expenses were $71,000. What is the profit or loss for Deere and Bros.?
The lease terms, which include maintenance, call for a $10,000 lease payment (4 payments total) at the beginning of each year. DTC's tax rate is 40%.
Compare and contrast the capital budgeting techniques of Net Present Value (NPV), Payback, Internal Rate of Return (IRR), and the Profitability Index (PI). Discuss the strengths and weaknesses for each technique.
Norville Creations wants to get an after-tax profit of $45,000 for the year ended December 31, Year 1. The corporation sells its product for $35 per unit and has a contribution margin ratio of 15 percent.
Jarrett Enterprises is considering whether to pursue a restricted or relaxed current asset investment policy. The firm's yearly sales are $400,000; its fixed assets are $100,000; debt and equity are each 50% of total assets.
You require a return of 10 percent and use a light fixture 500 hours per year. What is the break-even cost per kilowatt-hour?
Velcro Saddles is contemplating the acquisition of Pogo Ski Sticks, Inc. The values of the two companies as separate entities are $20 million and $10 million, respectively. What is the gain from merger?
What aspects of this organizational structure seem to work well and those aspects that seem to be dysfunctional.
The machine will be sold for $120,000 after taxes at the end of year five. What is the net present value of the machine if the required rate of return is 13.5%.
Roto Roofing Corporation just paid a dividend of $1.85. This dividend is expected to grow at a constant annual ratae of 3 percent each year. Roto Roofing's common stock is currently selling for $12.50.
analyze the following investment alternatives for the highest after-tax rate of return under the assumption that the client is subject to a 28% marginal federal income tax and a 5% state income tax. • A corporate bond with a 7% pretax return
Stock A has a beta of .2, and investors expect it to return 5%. Stock B has a beta of 1.8, and investors expect it to return 17%. Use the CAPM to find the expected rate of return and the market risk premium on the market.
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