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Assume, instead that each year the chances that a worker will leave the firm, given he/she has not left to date, are 20% (i.e. the firms expected turnover rate for these sales positions is 20% per year). Which employee should it hire now?
Use your spreadsheet program to increase the firm’s discount rate higher and higher above 10%. What happens to its expected present value of profits for each worker? Do the same for the turnover rate. What happens in each case to the firm’s decision regarding which of the two workers to hire? Why?
The Leventhal banking company is thinking of expending their operations into a new line of pastries. The form expects to sell $350,000 of the new product in the first year and $500,000 each year thereafter. Prepare a statement showing the incremental..
A firm has a debt- equity ratio of 1.0. The required return on the firm’s assets is 16.1% and the pretax cost of debt is 9.1%. Ignore taxes. What is the firm's cost of equity?
A firm’s milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it.
How much should Harrison be willing to pay for Pugs in total and per share if the firm is not expected to grow significantly and management insists that acquisitions be justified by no more than 10 years of projected cash flows?
A stock you are buying today promises no dividends for a long time. In exactly 5 years the stock will pay its first dividend of $2.30. At that time you also believe the stock could be sold for $43.00. If today you can buy the stock for $28.95, what i..
You are a financial analyst with the U. S.- based MNC Prod & Push, which sells consumer products around the world. You report directly to the CFO. You have been assigned the task of negotiating with bankers on certain forward contracts involving the ..
Case Study: Publix Super Markets, IncIn preparing your written case analysis, follow the steps outlined below. Identify the company's financial position:Analyze the balance sheet, income statement and statement of cash flows
Enron utilized Special Purpose Entities (SPE) in the Cayman Islands to significantly improve its sales and income. AIG and others have used offshore insurance contracts to “smooth out” their earnings. Is it unethical if these corporations enter into ..
Why financial institutions are highly regulated in all countries?
Over the last year the rates of return on these corporate stocks followed a normal distribution with mean 12.2% and standard deviation 7.2%.
The Portland Stallion professional football team is looking at its future revenue stream from ticket sales. Currently a season package costs $275 per seat. The season ticket holders have been promised this same rate for the next five years.
A company has a target capital structure of 60% debt and 40% equity and the tax rate is 34%. If the cost of debt is 8%, and he cost of equity is 12%, what is WACC of the company at its target capital structure?
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