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The Golf Range is considering adding an additional driving range to its facility. The range would cost $229,000, would be depreciated on a straight-line basis over its seven-year life, and would have a zero salvage value. The anticipated revenue from the project is $62,500 a year with $18,400 of that amount being variable cost. The fixed cost would be $15,700. The firm believes that it will earn an additional $22,500 a year from its current operations should the driving range be added. The project will require $3,000 of net working capital, which is recoverable at the end of the project. What is the internal rate of return on this project at a tax rate of 34 percent? a. 7.47 percent b. 11.09 percent c. 8.68 percent d. 8.32 percent e. 12.14 percent
One position expressed in the financial literature is that firms set their dividends as a residual after using income to support new investments. A. Explain what a residual policy implies (assuming that all distributions are in the form of dividends)..
Janine Welch inherited a house from her father. Her father’s basis in the house was $550,000, and the fair market value at the date of her father’s death was $875,000. Her father’s taxable estate was only $2.4 million, so the estate did not owe any f..
Consider a 3-year zero coupon with a 5% yield to maturity. The bond price per $1000 of face value is $863.84. what is the modified duration of this bond?
Both Bond Sam and Bond Dave have 6 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has five years to maturity, whereas Bond Dave has 18 years to maturity. If interest rates suddenly rise by 2 percent, what is the perc..
You want to purchase a business with the following cash flows. How much would you pay for this business today assuming you need a 14% return to make this deal?
Five years ago, Cayman’s Crafters, Inc. issued new 25 year convertible bonds with a 4% coupon rate, compounded semi-annually. The bond has a par value of 10,000. The market’s required rate of return on similar securities at the time of issuance was 3..
A friend that has a mid-sized company has hired you and she would like to use you as a consultant. She wants you to calculate the WACC for her firm. The firm has face value of $150,000,000 outstanding of zero coupon debt that has a yield to maturity ..
Company "A" just paid a $1.30 dividend and analysts expect cash flows and dividends of the firm to grow at 20 percent for the next two years, 15 percent for the following two years and 6 percent annually afterwards. Stocks of this risk have required ..
Ann and Andy live in a 2000 square foot home with a market value of $120,000. The construction costs for similar homes in their area are $80 per square foot. What is the minimum amount of homeowners insurance they should buy so as not to be negativel..
The increase in risk to equity holders when financial leverage is introduced is evidenced by: A. higher EPS as EBIT increases. B. a higher variability of EPS with debt than all equity. C. increased use of homemade leverage. D. equivalence value betwe..
Watkins Resources faces a smooth annual demand for cash of $1.65 million, incurs transaction costs of $70 every time the firm sells marketable securities, and can earn 3.2 percent on its marketable securities. What will be its optimal cash replenishm..
If a firm has purchases of $50,000, a starting inventory of $35,000 and the cost of goods sold is $45000, what is the dollar amount of its ending inventory?
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