Purchase Solution

Required Rate of Return on Southwest Cellular Deal

Not what you're looking for?

Ask Custom Question

Five years ago your firm installed a quick-lube store on Connolly avenue.Southwest cellular would like your store to convert to one of its own outlets. They have made you an offer that nets you $600,000 after taxes. Your required return is 12%.

a.- You expect $ 75,000 cash flow after tax for the next 10 years. Should you abandon?

b.- Assume your annual cash flow is $120,000. What is the minimum offer you would accept?

Purchase this Solution
Solution Summary

This solution helps with a problems regarding business decisions based on cash flows.

Solution Preview

a.
without taking their offer the present value of our store will be
(using financial calculator or excel)
PMT=75000
N=10
i=12%
CPT PV = 423,766.73

Therefore, we should ...

Purchase this Solution
Free BrainMass Quizzes
IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.

SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.

Paradigms and Frameworks of Management Research

This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.

View More Free Quizzes
Related BrainMass Solutions

  • Honda Motor Company & Learning Curves

    I would suggest Southwest Honda, Inc review the steps the mechanics are taking with Honda Motor Company's analysis to see if there is miscommunication. Clearly the rate is not acceptable based on the results of the Southwest Honda sample.

  • Lease Footnote Southwest, impact on FS of leases

    The lessee uses the lower of its incremental borrowing rate or the lessor's desired return rate (if known) when determining the present value of minimum lease payments. B.

  • Expected Return and Risk and Portfolios

    Since the return rate of Southwest is higher than that of Target, the portfolio with the highest return rate will natually be total investment into Southwest only, i.e., investing all the $50,000 into Southwest.

  • Calculations for the WACC of a Company

    What is your estimate of Golden Clothiers' levered equity beta? c. If T-Bills are yielding 1.8% and the return on the market is 9.3%, what is the required return on Golden Clothiers' stock, according to the CAPM? d.

  • Stock Price

    Cellular Systems paid a $3 dividend last year. The dividend is expected to grow at a constant rate of 5 percent over the next two years. The required rate of return is 12 percent (this will also serve as the discount rate in this problem).

  • Five Forces Analysis of the Prepaid Mobile Phone Industry

    This is due to issues with bandwidth, which is required for any feature on a cellular phone. The more bandwidth, the more capabilities a service can offer.

  • Net Present Value & Rate of Return for a winning Powerball lottery ticket

    The prize is $2 million at the end of each year for the next 25 years. If your required rate of return is 8 percent, what is the net present value (NPV) of the deal?

  • Southwest Airlines Financial Ratio Analysis: 2007-2010

    Please find attached a formatted MS Excel spreadsheet containing data on the financial performance of Southwest Airlines during its fiscal years 2007 through 2010.

  • Southwest Airlines Acquisition Strategy for AirTran

    Southwest Airlines-Acquisition of Air Tran Southwest Airlines recently acquired Air Tran Airways in a $1.4 billion deal.

View More Related Solutions