Problem 1 Use CAPM methodology to compute the following: A. Compute a fair rate of return for Intel common stock with a beta of 1.2. The risk free rate is 6% and the NYSE market portfolio has an expected return of 16%. B. Why is the rate you computed a fair rate? Problem 2 The Niagra corporation is considering
A firm is planning to supply a customer with silver coaster sets. The customer plans to purchase 10,000 sets anually for the next 4 years. The coaster sets will sell for $500 per set. Up front costs associated with this project are $600,000 and will have no value at the end of the project. Variable costs are $375 per coaster set
Rocky Top Car Wash is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, would be depreciated by the straight-line method over the project's 3-year life, and would have zero salvage value. No new working capital would be required. Revenues and other operating costs are e
Dumpe Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price will increase with inflation. Fixed costs will also be constant, but variable costs will rise with inflation. The project should last for 3 years, and there will be no salvage value.
TexMex Products is considering a new salsa whose data are shown below. The equipment that would be used would be depreciated by the straight-line method over its 3-year life, would have zero salvage value, and no new working capital would be required. Revenues and other operating costs are expected to be constant over the projec
Multiple Choice Questions: net float, financial policy, static theory of capital structure, security market line, optimal capital structure, net present value of the project, IPOs and underpricing, preemptive right, earnings per share, cost of equity, financial statement analysis, aftertax income, levered value of the firm, financial leverage, efficient financial markets, operating cash flow
Question 40. A firm writes 300 checks a day for an average amount of $200 each. These checks generally clear the bank in 3 days. In addition, the firm generally receives an average of $70,000 a day in checks which it deposits immediately. Deposited funds are made available in 3 days. What is the fir
Here is a summary of the cash flows for a project which has recently been submitted to a review committee. Time Period Annual Cash Flow (after taxes) 0 -$1,600,000 1 600,000 2 600,000 3 400,000 4 400,000 Additional information which applies to
Initial cost $10 million Unit sales 100,000 Selling price per unit this year $50.00 Variable cost per unit, this year $20.00 Life expectancy 10years Salvage value $0 Depreciation - Straight line Tax rate 34% Nominal discount rate 10% Real discount rate 10% Inflation rate 0% 1.Prepare a spreadsheet to estimat
1. A project is expected to create operating cash flows of $22,500 a year for three years. The initial cost of the fixed assets is $50,000. These assets will be worthless at the end of the project. An additional $3,000 of net working capital will be required throughout the life of the project. What is the project's net present v
See see the file for the full problems (Ignore income taxes in this problem.) The following data concern an investment project: The working capital will be released for use elsewhere at the conclusion of the project. Required: Compute the project's net present value. Spivey Company has two service departm
Please help me out with the following questions. 1- Operating cash flows rather than accounting profits are listed in Table 12- 1. Why do we focus on cash flows as opposed to net income in capital budgeting? 2 Explain why sunk costs should not be included in a capital budgeting analysis, but opportunity costs and extern
A project requires an initial outlay of $60,000 and is expected to yield an annual cash flow of E(X) = $10,000. The cash flow is a perpetuity. The project's beta is 2, the market portfolio's mean rate of return is E(Rm) = 15%, and the riskless interest rate, r, is 4%. The firm is an all-equity firm. Should the firm accept the
Problems: 1). You are a real estate agent thinking of placing a sign advertising your services at a local bus stop. The sign will cost $ 5000 and will be posted for one year. You expect that it will generate additional revenue of $ 500 per month. What is the payback period? 2). Innovation Company is thinking about marketi
I have attached two excel files with 3 question on each of them. Kindly solve the 6 questions. Thank you ! Mrs. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered a new kiln for $400,000. Of this sum, $50,000 is described by the supplier as an installation cost. Mrs. Potts does not
Scenario Analysis - a project that will stock San Antonio with 40000 tons of machine screws every year for auto production
Here's the deal: I'm developing a project that will stock San Antonio with 40000 tons of machine screws every year for auto production. I'll need an initial 1,700,000 dollars in investment money for threading equipment just to get started. The project will last 5 years and the accounting department says that annual fixed cost
Samara inc is considering a project that would have a ten-year life and would require a $1,500,000 investment in equipment. At the end of ten years the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows: Sales
Questions for Finance 1. What is a cash budget? a. Detailed plan of future cash flows b. Budget that shows only the cash that comes in c. Historical look at cash flows d. Report that analyzes the cash account e. Report that analyzes the accounts receivables 2. If your revenue is $10 million, your variable cost is $
Year Project A Project B 0 -7500 -5000 1 4000 2500 2 3500 1200 3 1500 3000 Here's the question - if the payback period cutoff is 2 years, which project should I choose? Also, if I use the NPV rule to rank the projects, which one should I choose if the disc
Multiple choice questions: net after-tax cash effect of operations, cash flow, Accelerated depreciation, depreciation, average tax rate, capital budgeting, present value, required rate of return, adjustment for inflation
Question 31: Robin Company is considering the purchase of a new $80,000 delivery van. The van will have a useful life of 5 years, no terminal salvage value, and tax depreciation will be calculated using the straight-line method. If the van is purchased, the company will be able to increase annual revenues by $90,000 per year for
If I was to buy a piece of equipment costing $200,000 and have an expected life of 10 years and look to generate an increase in net income of $35000 per year for the next 10 years.
If I was to buy a piece of equipment costing $200,000 and have an expected life of 10 years and look to generate an increase in net income of $35000 per year for the next 10 years. The probabilities for the increase in net income depend on the state of the economy. Probabilities After-Tax Net Income Expected V
Western Kansas University is considering replacing some Ricoh copiers with faster copiers purchased from Kodak. The administration is very concerned about the rising costs of operations during the last decade. To convert to Kodak, two operators would have to be retrained. Required training and remodeling would cost $4,000.
Philadelphia Physicians is considering the replacement of an old billing system with new software that should save $5,000 per year in net cash operating costs. The old system has zero disposal value,
Philadelphia Physicians is considering the replacement of an old billing system with new software that should save $5,000 per year in net cash operating costs. The old system has zero disposal value, but it could be used for the next 12 years. The estimated useful life of the new software is 12 years, and it will cost $25,000. T
Part one 1. Risk preferences Sharon Smith, the financial manager for Barnett Corporation, wishes to evaluate three prospective investments: X, Y, and Z. Currently, the firm earns 12% on its investments, which have a risk index of 6%. The expected return and expected risk of the investments are as follows: Investment Expect
If you were to derive the NPV of the future cash flows from a bond purchased at some price, at what discount rate would the NPV = zero?
If you were to derive the NPV of the future cash flows from a bond purchased at some price, at what discount rate would the NPV = zero? I don't understand this question. Can someone please help me answer this?
1.TLC Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it possible for the company to bid on jobs that it currently isn't equipped to do. Estimates regarding each machine are provided below: Machine A Machine B Original Co
Your firm is looking at a new investment opportunity, Project Alpha, with net cash flows as follows: ---- Net Cash Flows ---- Project Alpha Initial Cost at T-0 (Now) ($10,000) cash inflow at the end of year 1 6,000 cash inflow at the end of year 2 4,000 ca
Using the data in the attached income statement, explain the three value maximization decisions. After taking a closer look at the numbers and doing the financial analysis, you begin to think more strategically, and in a broader context, you anticipate what the CFO would ask or what the head of Strategic Planning might want to k
You work for an automobile company that is considering developing a new car. The product development cost for this new car will be $500 million per year for 3 years. During the third year of product development, the company will incur $1 billion for manufacturing set up costs. Three years after the start of product developmen
Consider the following cash flows on two not mutually exclusive investments. Year Investment A Investment B 0 -$100 -$100 1 44 69 2 56 51 3 65 32 The required return is 15%. The investments are not mutually exclusive. a) Calculate the NPV and
1-An investment costs 10,000 and offers an annual cash flow of 1770 for 10 years. According to the net present value method of capital budgeting, should the firm make this investment if its cost of capital is 10%? 2-A Freddie Industries $10,000 bond was issued with a 6% coupon rate and will mature in 20 years. Assume that the