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Growth option Martin Development Co. is deciding whether to proceed with Project X. The cost would be $10 million in Year 0. There is a 50% chance that X would be hugely successful and would generate annual after-tax cash flows of $6 million per year during Years 1, 2, and 3. However, there is a 50% chance that X would be less successful and would generate only $1 million per year for the 3 years. If Project X is hugely successful, it would open the door to another investment, Project Y, that would require $9 million outlay at the end of Year 2. Project Y would then be sold to another company at a price of $21 million at the end of Year 3. Martin's WACC is 11%. a. If the company does not consider real options, what is Project X's NPV? Round your answer to two decimal places. If the answer is negative, use minus sign. b. What is X's NPV considering the growth option? Round your answer to two decimal places. If the answer is negative, use minus sign. c. What is the value of the growth option? Round your answer to two decimal places. If the answer is negative, use minus sign.
Drugs r us operates a mail order business. Company recieves average $325,000 payments per day. Average four days to recieve payment from time customer mails check tell firm recieves payment.
A corporation buy a patent for $900K with an estimated life of 15 years. It is subsequently reduced to ten years. During year 5, the product for which the patent is held is removed from market.
Evaluate the cost of common equity using CAPM formula and hired you as a consultant to help them estimate its cost of capital
In an effort to track the local economy Finance 327 has decided to create a San Diego stock market index. The index will be made up of four local stocks Sempra Energy.
Compare longterm investments and short-term risks, in terms of the various types of risk to which investors are exposed. Describe your answers.
Assume an 8 percent coupon rate. What effect does changing the coupon rate have on the firm's after-tax cost of capital?
Discuss the advantages, disadvantages, and types of firms (e.g. growth oriented, mature, etc.) that might be likely to adopt each type of the following dividend policies:
Illustrate the foreign exchange rate between two currencies. Describe its effect on business transactions conducted in a foreign currency.
An alternative approach to hedging risk is to focus instead of diversify. In this approach, which is just the opposite of diversifying, you would only invest in one thing.
Assume you are the money manager of a four million investment fund. The fund consists of four stocks with the following investments and betas:
If Hudson Corporation borrows $500,000 on a 10% add-on basis, payable in twelve equal end-of-month installments, how large would the monthly payments be?
What is the EBITDA coverage ration?
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