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In December 2005, MidAmerican Energy brought the largest wind farm in the world online. It cost $386 million and the wind farm had a capacity of 360.5 megawatts (mW). Winds are unpredictable and most wind farms assume they operate at 35% capacity. At a price of electricity of $55 per megawatt, the farm will produce $60.8 million (.35 x 8,760 hours x360.5 mW x $55 per mW hour). The estimated maintenance costs in the first year are $18.9 million and remain at that level for the life of the project. Conventional power plants can be depreciated at a 20-year straight-line deprecation rate and their profits are taxed at 35%. Assume the project has a projected life of 20 years and the cost of capital is 12%. To encourage renewable energy, the government is considering tax breaks for wind farms.
a. How large of a tax break is needed to make this wind farm a net-positive NPV investment?
b. What if wind patterns change and the operating capacity ends up being 30%, not the estimated 35%?
A woman made ten annual end-of-the-year purchases of $1000 of common stock. At the end of the tenth year, she sold all the stock for $12000. What interest rate did she obtain on her investment?
Pistachio inc. is thinking of building a bakery to introduce French cookies, so-called macaroons, to the Newark market. Currently the firm's market cap is $800 million. Its equity beta is 1.25 It also has 200 million debt outstanding. The total amoun..
Manu Inc. ("Manu") is a specialized manufacturing corp that has been in business for 22 years. Walter and Jane Smith, husband and wife, founded the business and own 60 percent of Manu's outstanding common stock. Linda wants to know if she has any rig..
You are considering an investment in a new sub-industry of interest to your firm. To understand the importance of terminal value assumptions you have decided to calculate NPV under two different sets of assumptions. The appropriate discount rate for ..
Please explain as much as possible on an alternative tax system that has been proposed to replace the current tax system. Explain the expected impact on the economy, the IRS, and other factors that may be relevant.
If an investment is producing a return that is equal to the required return, the investment's net present value will be:
Assume the following information for an existing bond that provides annual coupon payments: Par value = $1,000 Coupon rate = 11% Maturity = 4 years Required rate of return by investors = 11% a. What is the present value of the bond? b. If the require..
A call option has an exercise price of $55 and matures in three months. The current stock price is $63, and the risk-free rate is 4 percent per year, compounded continuously. What is the price of the call if the standard deviation of the stock is 0 p..
Assume that you just won the state lottery. Your prize can be taken either in the form of $40,000 at the end of each of the next 25 years (i.e., $1 million over 25 years) or as a lump sum of $500,000 paid immediately. If you expect to be able to earn..
Matsumoto Limited (ML), a large conglomerate firm. Compute the marginal cost of capital schedule for ML, and determine the break points in the schedule.
A coin that is balanced should come up heads half the time in the long run. A coin is tossed 4040 times and gives 2085 heads.
Charles Hess is saving for a new tractor. The cost is $75,000. How much must he invest at a 4% annual interest rate to have $75,000 in six years? Karen is saving for a new car. The car cost 22,000. How much must Karen invest in a savings account that..
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