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Sawtooth Machinery is considering a 4-year project to manufacture a new line of chainsaws. The project requires an investment of $760,000 and will generate $380,000 per year earnings before interest, taxes, and depreciation. The investment will be depreciated straight line to zero over four years. The tax rate is 35% and the cost of levered equity is 13%. Sawtooth will borrow 40% of the project value at 6%. Debt will be paid down in one lump sum payment in the 4^th years.
a) What are the unlevered cash flows in years 0 through year 4?
b) What is the NPV of the project if it were all equity financed?
An individual has $20,000 invested in a stock with a beta of 0.3 and another $60,000 invested in a stock with a beta of 1.5. If these are the only two investments in her portfolio, what is her portfolio's beta? Round your answer to two decimal places..
If the friend normally discounts investments cash flows at 10.50 percent annually, how much did Jeremy borrow?
Suppose Tom, Ltd. just issued a dividend of $2.00 per share on its common stock. The company’s dividends have been growing at a rate of 7%. If the stock currently sells for $50.00, what is your best estimate of the company’s cost of equity?
Enterprise, Inc. bonds have an annual coupon rate of 11 percent. The interest is paid semiannually and the bonds mature in 9 years. Their par value is $1,000. If the market's required yield to maturity on a comparable-risk bond is 14 percent, what is..
Calculate the NPV, Payback Period, IRR, calculate the Profitability Index, calculate the Operating Cash Flow.
A non-dividend-paying common stock is trading at $100.- What is the annually compounded risk-free interest rate where the boundary condition begins to be non-zero?
the attributes of the two widely accepted models used for option pricing: Black-Scholes and Binomial Models. Your paper should be completed in Word and be no less than two pages in length following APA format.
You simultaneously write a put and buy a call, both with strike prices of $70, naked, i.e., without any position in the underlying stock. What are the expiration date payoffs to this position for stock prices of $60, $65, $70, $75, and $80?
Thornley Machines is considering a 3-year project with an initial cost of $1,050,000. The project will not directly produce any sales but will reduce operating costs by $600,000 a year. The equipment is depreciated straight-line to a zero book value ..
Explain carefully why Black's approach to evaluating an American call option on a dividend-paying stock may give an approximate answer even when only one dividend is anticipated.
Jessie won big in a recent raffle. Her prize entitles her to a 20-year annuity with equal annual payments beginning immediately and totaling $10,000,000. Jessie has agreed to strike a deal with Liberty Settlement Funding, a financial services company..
An investment project has the following cash flows: CF0 = -1,000,000; C01 – C08 = 200,000 each. If the required rate of return is 12%, what decision should be made using NPV? How would the IRR decision rule be used for this project, and what decision..
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