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The HTT Company is considering a new product. The new product has a five-year life. Sales and net income after taxes for the new product are estimated in the following table:
The equipment to produce the new product costs $500,000. The $500,000 would be borrowed at a risk-free interest rate of 14 percent. However, the machine adds only $300,000 to the firm's debt capacity in years 1, 2, and 3, and only $200,000 in years 4 and 5. Although net income includes the depreciation deduction, it does not include the interest deduction (that is, it assumes that the equipment is financed with equity). The equipment can be depreciated on a straight-line basis over a five-year life at $100,000 per year. The equipment is expected to be sold for $100,000 in five years. Net working capital (NWC) required to support the new product is estimated to be equal to 10 percent of net sales of the new product. The NWC will be needed at the start of the year. This means that if sales were $1 in year 1, the NWC needed to support this one dollar of sales would be committed at the beginning of year 1. The company's discount rate for the unlevered cash flows associated with this new product is 18 percent and the tax rate is 40 percent. What is the net present value of this project?
The Carlton Corporation has $5 million in earnings after taxes and 2 million shares outstanding. The stock trades at a P/E of 20. The firm has $4 million in excess cash. a. Compute the current price of the stock. b. If the $4 million is used to pay..
The Elvisalive Corporation, makers of Elvis memorabilia, has a beta of 2.75. The expected return on the market is 14% and the risk free rate is 4%. According to the CAPM, what is the expected return on Elvisalive stock?
What is a mutually exclusive investment project? An independent project? A contingent project? Give an example of each.
If, at the end of project life, a piece of machine having a book value of $4,000 is expected to bring $3,000 upon resale, and income tax rate is 40 percent,
This case is about structuring the financing. You do not need to change the FCF or value unless you really feel they missed something. You will need to construct a financing schedule. Determine a probable price
Assume interest rate differential in dollar and Swiss francs is 4 percent per annum-What actions would you take to profit from the above condition provided that you can borrow SF 1,000,000.00 or its dollar equivalent?
this is a comprehensive problem that provides a review of the material covered in the course to datenbspnbspsouthface
Suppose today is Tuesday, January 18, 2011. If you enter into a 30-day forward contract to purchase euros, when will you pay your dollars and receive your euros?
Which financial variable must be multiplied by the net profit margin ratio in order to calculate the return on assets ratio? What is the numerical value of the debt ratio if the debt-to-equity ratio is equal to 4?
the fridge-air companys preferred stock pays a dividend of 4.50 per share annually. if the required rate of return on
Determine what factors would cause a difference in the use of financial leverage for a utility corporationand an automobile company?
what are the different forms of business organization and briefly discuss each ones advantages and disadvantages?
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