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Debby’s Dance Studios is considering the purchase of new sound equipment that will enhance the popularity of its aerobics dancing. The equipment will cost $24,300. Debby is not sure how many members the new equipment will attract, but she estimates that her increased annual cash flows for each of the next five years will have the following probability distribution. Debby’s cost of capital is 10 percent. Cash flow Probability $ 3,980 .4 5,280 .2 8,140 .2 10,600 .2 (a) What is the expected value of the cash flow? (Omit the "$" sign in your response.) Expected cash flow $ (b) What is the expected net present value? Use Appendix D. (Round "PV Factor" to 3 decimal places, intermediate and final answers to the nearest dollar amount. Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.) Net present value $ (c) Should Debby buy the new equipment? No
Which one of the following actions is not used to protect against risk?
Suppose the real rate is 3.5 percent and the inflation rate is 5.1 percent. What rate would you expect to see on a Treasury bill? (Round your answer to 2 decimal places. (e.g., 32.16))
McIntyre's Moats, Inc. most recent dividend was $2.00. Its dividend is expected to grow by 25% per year for the next two years, and then grow at a constant rate of 5% per year. If you require a 15% rate of return how much would you pay for a share of..
Beta measures diversifiable risk while standard deviation measures systematic risk. The CAPM estimates the required rate of return on a stock held as part of a well-diversified portfolio. Adding stocks with higher standard deviations to a portfolio w..
Assume that you are a consultant to Tintle Inc., and you have been provided with the following data: D1 = $0.81; P0 = $23.43; g = 4.00% (constant). What is the cost of common equity from retained earnings based on the DCF approach?
Consider a portfolio choice problem in a world with risk free rate rf and two risky assets i = 1; 2. Assume that one asset has both a higher expected return and volatility than the other, so that 1 > 2 and 1 > 2, and that the returns to each are unco..
In the first week of class we discussed the three phases of the Strategic Management Process. Understanding the Internal Strengths and Weaknesses is essential to both the Strategy Formulation and the Strategy Execution phases.
According to research, NPV and IRR are the most used methods of determining capital budgeting decisions. Discuss the positive and negative aspects of these and any other methods you deem relevant. Finally, state the method you would use as a financia..
Explain by reference to case law how the courts make the distinction between a contract of service and a contract for services. What is the importance of this distinction?
In 2015, Usher Sports Shop had cash flows from investing activities of –$4,534,000 and cash flows from financing activities of –$5,965,000. The balance in the firm’s cash account was $1,632,000 at the beginning of 2015 and $1,776,000 at the end of th..
Abacus, Inc. forms a corporation, Sirius, Inc., by transferring 18 percent of Abacus's stock to it for 100 percent of the stock in Sirius. Sirius, Inc. acquires 90 percent of the stock of Tyrol, Inc. for its stock in Abacus, whereupon Sirius is merge..
What agency problem might be identified from managers using corporate funds for non-value maximizing purposes?
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