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Schweser Satellites Inc. produces satellite earth stations that sell for $100,000 each. The firms fixed costs, F, are $2 million; 50 earth stations are produced and sold each year; profits total $500,000; and the firms assets (all equity financed) are $5 million. The firm estimates that it can change its production process, adding $4 million to investment and $500,000 to fixed operating costs. This change will (1) reduce variable costs per unit by $10,000 and (2) increase output by 20 units, but (3) the sales price on all units will have to be lowered to $95,000 to permit sales of the additional output. The firm has tax loss carry forwards that cause its tax rate to be zero, its cost of equity is 16%, and it uses no debt.
a. What is the incremental profit? To get a rough idea of the projects profitability, what is the projects expected rate of return for the next year (defined as the incremental profit divided by the investment)? Should the firm make the investment?
b. Would the firms break-even point increase or decrease if it made the change?
c. Would the new situation expose the firm to more or less business risk than the old one.
Explain or define and discuss a bond issued by city that is having a little bit of problem with creditworthiness (but not "junk" level yet) and how it is differentiated from other bonds.
Computation of IRR and NPV where The Renn project cost $200,000 and its expected net cash inflows are $47,500 per year for 6 years and then $50,000 for 6 years.
Cascade Water Company (CWC) currently has 30,000,000 shares of common stock outstanding that trade at a price of $42 per share. CWC also has 500,000 bonds outstanding that currently trade at $923.38 each.
Determine the true statement regarding stock bonus plans and ESOPs.
selling general and administrative expenses totaled $1,416,400 for the year, and cost of goods sold was $10,963,600 for the year. Assuming a federal income tax rate of 34%, what was the Delta Ray Brands net income after-tax?
Prepare a statement of annual cash flows for years 0 through 5. Cash flows in year 0 are your expenses for building and land.
You deposit $10,000 into a retirement account at the end of the next 10 years earning 9% interest, what is the future value of your retirement after 10 years?
What is the number of payments per year where the costs of the two banks will be equal? Assume Dupree's cost of funds is 9%.
Fixed costs that change for activity outside relevant range would include-When gross margin pricing is employed, the markup percentage includes
What rate of return would you expect on a 1-year Treasury security, assuming the pure expectations theory is NOT valid? Include the cross-product term, i.e., if averaging is required, use the geometric average.
The firm had a beginning inventory of $36,000 and an ending inventory of $47,000. What is the length of the inventory period?
Calculation of weighted average cost of capital from given data and The company anticipates issuing new common stock during the upcoming year
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