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Another utilization of cash flow analysis is setting the bid price on a project. To calculate the bid price, we set the project NPV equal to zero and find the required price. Thus the bid price represents a financial break-even level for the project. Guthrie Enterprises needs someone to supply it with 157,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you've decided to bid on the contract. It will cost you $1,970,000 to install the equipment necessary to start production; you'll depreciate this cost straight-line to zero over the project's life. You estimate that in five years this equipment can be salvaged for $167,000. Your fixed production costs will be $282,000 per year, and your variable production costs should be $10.20 per carton. You also need an initial investment in net working capital of $147,000. If your tax rate is 40 percent and you require a 11 percent return on your investment, what bid price per carton should you submit?
Gross Fixed Asset Expenditures- Changes in Net Operating Working Capital
Construct payoff and profit diagrams for the purchase of a 950-strike S&R call and sale of a 1000-strike S&R call. Verify that you obtain exactly the same profit diagram for the purchase of a 950-strike S&R put and sale of a 1000-strike S&R
Being company's stock has PE ratio of 17.12 and pays $1.94 in dividends per share. What is firm's earnings per share (EPS)?
Write down the ethical implications of corporations such as United Airlines and General Motors which utilize bankruptcy as a strategic financial tool to minimize their pension and health benefit obligations?
The largest retail brokerage company in the United State, America's Best Investment Company, has hired you to advise clients on investments and to meet their individual financial objectives.
What are the annual total cash flows? What is the NPV if the project has a 13% required return?
Penn Steelworks is a distributor of cold-rolled steel products to the automobile industry. All of its sales are on a credit basis, net thirty days. Sales are evenly distributed over its 10 sales regions throughout US.
Different products have different elasticity's. Heart medication, for example, is inelastic & corn is elastic. Determine a product and explain the price elasticity and income elasticity.
Why does WACC increase and IRR decrease as the capital budget increases? Are there any steps management can take to reverse these trends?
Was the overall result favorable or unfavorable? On average, it was able to collect $55 per flu shot and $70 per flu patient. Compute the volume, mix, and price revenue variances. How did things turn out for the group considering just revenues? H..
Suppose that a firm's recent earnings per share and dividend per share are $3.80 and $2.80, respectively. Both are expected to grow at 10 percent. However, the firm's current P/E ratio of 19 seems high for this growth rate. The P/E ratio is expect..
Big Tom's stock is not expected to pay cash dividends for three years. In years 4, 5, and 6 the cash dividend will be $6 a year, and year seven to infinity the cash dividend will be $8 a year.
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