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Assume that the firm in 12 above can add a new division at a cost of $80,000, which will increase NOPAT by $15,200. Would the firm add the division?
a. Yes. Abnormal earnings would increase by $9,200, adding additional value to the firm.
b. Yes. This project has a positive net present value of more than $10,000, creating additional value to the firm.
c. No. This project creates additional abnormal earnings of $3,200, which is less than the 15% required return.
d. No. The discount rate may increase, causing the value of the firm to decline.
Viton's 1981 study of urban transit costs found that urban transit firms operating in small cities (where fewer than one million vehicle-miles are produced annually) operate under increasing returns to scale, Assuming that fares are set at marginal c..
A 20-year 1000 par value bond pays 4% annual coupons. The bond is priced to yield an annual effective rate of 5%. The continuous compounded risk free rate of interest is 4%. Calculate the delivery price of the bond for a three year forward contract w..
justo Ltd buys on terms 1.5/10, net 30 days. It does not take discounts, but it typically pays 20 days after the invoice date, instead of waiting until Day30. Justso can borrow from the bank at a rate of 18% per annum. If justso is notaking discounts..
Once a company acquires 5% of the outstanding shares of a publicly held company, it must:
In mid-September, 2015 S&P 500 lowered the credit rating of We$ellDrugs, Inc (W$D) from AAA to AA in response to widespread outcry about the pricing of generic drugs that were recently purchased by the company. How would the yield to maturity of the ..
The more cash the firm uses to repurchase shares, the less it has available to pay dividends. Free cash flow measures the cash generated by the firm after payments to debt or equity holders are considered. We interpret rWACC as the expected return th..
Susan has a 5-year “bunny bond” with a yield to maturity of 6.4% that will be automatically reinvested next month. She is considering liquidating the bond and reinvesting in a 10-year 3.5% coupon bond with a yield to maturity of 6.5%. Market rates ar..
The risk-free rate of return is 5%, the required rate of return on the market is 10%, and High-Flyer stock has a beta coefficient of 1.5. If the dividend per share expected during the coming year, D1, is $2.50 and g = 4%, at what price should a share..
The linear relation between an assets expected return and its Beta coefficient is the:
A project has an initial cost of $70,400, expected net cash inflows of $14,000 per year for 12 years, and a cost of capital of 8%. What is the project's NPV? (Hint: Begin by constructing a time line.) Do not round your intermediate calculations
Mannings Co. has 7% coupon bonds on the market that has 10 years left to maturity. The bonds make annual coupon payments. If the YTM on these bonds is 8%, what is the current bond price?
Aqua System Inc. expects to have $18,526,400 in credit sales during the coming year. Currently all checks are sent to the home office. A proposed lockbox system can eliminate 1 days of float, releasing funds which, when invested, will earn 12.10 perc..
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