1. MSM company is considering an investment in and the introduction of a new product line. The financial performance of the line will depend upon the state of the economy. The following forecasts have been made for this project. If the economy is strong (20% probiblity) the return is expected to be 20% If the economy is modera
See attached file "After-Tax Cost of Debt" L.L. Incorporated's currently outstanding 11% coupon bonds have a yield to maturity of 8%. L.L. belives it could issue new bonds at par that would provide a similair yield to maturity. If its marginal tax rate is 35%, what is L.L.'s after tax cost of debt?
"Smart analysts can massage the numbers in NPV analysis to make any project's NPV look positive. It is better to use a simpler approach, such as payback, that gives analysts fewer degrees of freedom to manipulate the numbers." Respond to this comment.
A company is considering the following investment opportunities (ABC) Investment Initial cost NPV@15% Expected life IRR A. $5,500,000 340,000 10 years 20% B. $3,000,000 300,000 10 years 30% C. $2,0
1. Identify one of the principal responsibilities of each of the following financial managers: (a) Chief Financial Officer (CF0), (b) Treasurer, and (c) Controller. How important is that these financial managers are: (d) ethical; (e) efficient? Explain. 2. (a) Identify three market variables whose value affects the financia
You are to evaluate a (hypothetical) proposed new project for O'Reilly Automotive that involves getting into the automotive care products business, such as cleaners, waxes and conditioners in a major way, by manufacturing your own private brand of these products and distributing them through your stores. The following are the k
Assuming that their NPVs based on the firm's cost of capital are equal, the NPV of a project whose cash flows accrue relatively rapidly will be more sensitive to changes in the discount rate than the NPV of a project whose cash flows come in later in it's life True or false
Should Diagnostic Chemicals Proceed with the Development of the DNA-Based Genetic Testing Instrument? Francis Erkhart, a local scientist, has recently invented a very promising and relatively simple DNA-based genetic testing instrument that allows doctors to -threatening diseases. He has approached Diagnostic Chemical
A firm is considering leasing a new system. The lease lasts for 5 years. The lease calls for 6 payments of $300,000 per year with the first payment occurring at lease inception. The system would cost $1,050,000 to buy and would be straight-line depreciated to a zero salvage value. The actual salvage value is zero. The firm can b
Pleasant Company has an opportunity to invest in one of two new projects. Project Y requires a $700,000 investment for new machinery with a four- year life and no salvage value. Project Z requires a $700,000 investment for new machinery with a three- year life and no salvage value. The two projects yield the following predicted
Elite Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $ 300,000 cost with an expected four- year life and a $20,000 salvage value. All sales are for cash, and all costs are out of pocket except for depreciation on the new machine. Additional informati
Geico Geico is considering expanding an existing plant on a piece of land it already owns. The land was purchased 15 years ago for $325,000, and its current market appraisal is $820,000. A capital budgeting analysis shows that the plant expansion has a net present value of $130,000. The expansion will cost $1.73 million, and t
How accurate do you think a company's estimates of the net present value of a proposed project are? Refer to both the initial investment and to the components of the cash flow: revenues, operating expenses, depreciation, taxes, and the cost of capital to use for the computation of the present value. Keep in mind that NPV is t
3. The common stock of Textile Mills pays an annual dividend of $1.65 a share. The company has promised to maintain a constant dividend even though economic times are tough. How much are you willing to pay for one share of this stock if you want to earn a 12 percent annual return? A) $13.75 B) $14.01 C) $14.56
XYZ is evaluating two mutually exclusive projects with the following net cash flows: Project A 0 years=-$2000 1 year =$300 2 year=$500 3 year=$800 4 year=$1200 Project B 0 years=-$2000 1 year =$1000 2 year=$800 3 year=$500 4 year=$200 1) XYZ's WACC is 10.3% and both projects have the same risk as the firms
Lynch's Bakery is planning on a addition. It will have an initial cost of $25,000 and expects to receive at the end of each year, including year 1, $1,000 for 5 years. It has a 15% cost of capital. a) Compute the net present value b) Should the project be accepted?
What is the net present value of a project with the following: -initial cost of fixed assets is $90,000 which will be worthless at the end of the project -will generate cash flows of $40,000 per year for 5 years -additional net working capital of $5,000 is required over the life of the project -required rate of return is 1
A new project requires an initial investment in fixed assets of $40,000. These assets will have a salvage value of $10,000 at the end of the 5 year project after being straight line depreciated over the 5 year period. The project will result in a $35,000 revenue increase and cost the company $22,000 each year. Working capital wi
Determine the proposal's appropriateness and economic viability. Assume spending occurs on the first day of each year and benefits or savings occurs on the last day. Assume the discount rate or weighted average cost of capital is 10%. Ignore taxes and depreciation. Proposal: New Factory A company wants to build a new fa
Shown below is the current monthly income statement of Metro Video, by profit centers: METRO VIDEO Income Statement by Profit Centers For the Month Ended April 30, 20__ On the basis of this information, compute the increase in monthly income from operations that may be expected to result from each of the following a
An investment offers $3,800 per year for 12 years, with the first payment occurring one year from now. If the required return is 10 percent, the present value of the investment is $? If the payments occurred for 39 years, the present value of the investment would be $? If the payments occurred for 79 years, the present value of
You are interest in an investment project that costs $7,500 initially. The investment has a 5-year horizon and promises future end-of-year cash inflows of $2,000, $2,000, $2,000 $1,500 and $1,500, respectively. Your current opportunity cost is 6.5% per year. However, the Fed has stated that inflation may rise by 1% or may fall
See attached file. Johnston Investments is considering a couple of investment possibilities. Each investment considered will draw on the capital account during each of its first 3 years. In the long run, each investment is predicted to have a positive NPV. Posted in the spreadsheet are the investment choices, its NPV's, and c
Please help with following assignment: See attached file for proper format. 1 The partnership of Lou and Bud is considering three long-term capital investment proposals. Relevant data on each project are as follows. Project
Dobbs Corporation is considering purchasing a new delivery truck. The truck has many advantages over the company's current truck (not the least of which is that it runs). The new truck would cost $56,000. Because of the increased capacity, reduced maintenance costs, and increased fuel economy, the new truck is expected to genera
1. On January 2, 2010, Thunder Corporation's board of directors considered the acquisition of a new line of equipment for its new Tower Division. Details surrounding the proposed investment are shown below, opportunity cost is 12.5% compounded continuously. Tower's board has asked you to evaluate N
See the attached file. Levelhead Company is considering the purchase of a new machine which will cost $1,000,000 (including installation and freight costs). The machine has an estimated useful life of five years, after which it can be sold for $350,000. If the new machine is purchased, the company estimates that the after-tax c
The new machine will be depreciated using the straightline method over its useful life. The new machine will replace an existing machine that was bought 10 years ago for $600,000. It had an estimated useful life of 15 years and is being depreciated using the straightline method over its life. The machine could be sold for $150,0
Wompac Company is considering the purchase of a new machine and must decide between two possible machines. The relevant data associated with each machine is shown below. Machine A Machine B Initial cost $275,000 $350,000 Installation cost $20,000 $30,000 Life (years) 4 7 Increase in revenues pa $180,000 $225,000 Increase i
See the attachment. Pine valley furniture recently implemented a new internship program and has begun recruiting interns from nearby university campuses. As part of this program, interns have the opportunity to work alongside a systems analysis. This shadowing opportunity provides invaluable insights into the systems analysi