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Consider a project to supply 106 million postage stamps per year to the U.S. Postal Service for the next five years. You have an idle parcel of land available that cost $1,960,000 five years ago; if the land were sold today, it would net you $2,160,000 aftertax. The land can be sold for $2,360,000 after taxes in five years. You will need to install $5.46 million in new manufacturing plant and equipment to actually produce the stamps; this plant and equipment will be depreciated straight-line to zero over the project’s five-year life. The equipment can be sold for $560,000 at the end of the project. You will also need $660,000 in initial net working capital for the project, and an additional investment of $56,000 in every year thereafter. Your production costs are .56 cents per stamp, and you have fixed costs of $1,080,000 per year. If your tax rate is 34 percent and your required return on this project is 12 percent, what bid price should you submit on the contract? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., 32.16161.)
After successfully completing your corporate finance class, you feel the next challenge ahead is to serve on the board of directors of Schenkel Enterprises. Unfortunately, you will be the only person voting for you. Schenkel has 370,000 shares outsta..
Explain the alternative risk management approaches and their advantages and disadvantages for a medium-sized gold producer such as Mesa. State which approach you think is appropriate for Mesa and why.
I want to have $1,000,000 at the end of 1 year, $1,000,000 at the end of 2 years, and $1,000,000 at the end of 3 years. If the interest rate is 5.2%, I need to invest $ now to achieve these payouts.
Suppose there are two assets available to an investor. One is risk-free and has a return of 3 percent. The other is risky and has an expected return of 8 percent and a variance of 0.05. The investor’s utility is given by U(r) = (2/3) E(r) − (1/2) AV ..
Thatcher Corporation's bonds will mature in 18 years. The bonds have a face value of $1,000 and an 8.5% coupon rate, paid semiannually. The price of the bonds is $950. The bonds are callable in 5 years at a call price of $1,050.
The issuance of bonds to raise capital for a corporation: The discount rate used to value a bond is: If the market price of a bond increases, then:
Suppose firm A and firm B are planning on merging. There are no costs or synergy benefits from the merger. Before the merger firm A has an issue of bonds outstanding. These bonds entitle the holder to a payment of $80 million when the bonds mature ne..
Your portfolio contains 10 stocks which are held in equal amounts. The portfolio beta is 1.66. The beta of one of the ten stocks (let’s call it stock A) is 2.20. You wish to lower the portfolio beta to 1.50 by selling all of stock A and replacing it ..
Below are the data for two stocks, both of which have a discount rate of 10 percent: Stock A Stock B Return on equity 11% 12% Earnings per share $2.20 $.90 Dividends per share $ .95 $.50 a. What are the dividend payout ratios for each firm? b. What a..
Once a strategic asset allocation is in place, an investor can make “tactical” adjustments to take advantage of market opportunities or to avoid risks. Which of the following is not an example of tactical shifts:
The manager of Sensible Essentials conducted an excellent seminar explaining debt and equity financing and how firms should analyze their cost of capital. Nevertheless, the guidelines failed to fully demonstrate the essence of the cost of debt and eq..
Let S=$100, K=$90, σ=30%, r=8%, δ=5%, and T=1 year. What is the Black-Scholes price of a European call option?
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