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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 154,000 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 $1,940,000 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 $164,000. Your fixed production costs will be $279,000 per year, and your variable production costs should be $9.90 per carton. You also need an initial investment in net working capital of $144,000. If your tax rate is 39 percent and you require a 13 percent return on your investment, what bid price per carton should you submit?
The only capital investment required for a small project is investment in inventory. Profits this year were $11,800, and inventory increased from $4,900 to $6,800. What was the cash flow from the project?
Explain Capital budgeting involves calculation of net present value and The following information is associated with this project
Computation of weighted average cost of debt using book value weights and market value weights.
Dividend Reinvestment Plans (DRIPs) are rarely heard of, yet most publicly traded companies offer one. Briefly list the advantages of participating in a DRIP. Are there any potential disadvantages? If so, what are they?
DEF has outstanding debt issue. The debt maturity is May 10, 2018 with 6.25% coupon, which is paid semiannually. Estimate the price of bond on November 10, 2014 after coupon is paid.
What are some advantages and disadvantages of the different types of direct and indirect foreign investments? Does direct or indirect foreign investment always lead to risk reduction?
Explain Capital budgeting involves calculation of net present value and is considering the development of one of two mutually exclusive new computer models
McDonald's and Burger King are situated on different corners of a downtown intersection. Burger King and McDonald's compete on the basis of the values they set for their burger, fry, and soda mixture meals.
Suzaki Manufacturing Corporation is planning three new projects, each requiring an equipment investment of $22,000. Each project will last for 3 years and produce the following cash inflows.
Valuation of Free Cash Flows and Value of the Firm using Constant Growth Model
Reymont Company applied for a trade name, incurring legal costs of $18,000. In January of 2010, Reymont incurred $7,800 of legal fees in a successful defense of its trade name.
Jensen's Travel Agency has 9 percent preferred stock outstanding that is currently selling for $30 a share. The market rate of return is 10 percent and the firm's tax rate is 34 percent. What is Jensen's cost of preferred stock?
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