See attached file for proper format. Capital Structure 1 The corporate treasurer of Ajax Company expects the company to grow at 4% in the future, and debt securities at 6% interest (tax rate = 30%) to be a cheaper option to finance the growth. The current market price per share of its common stock
What are major areas of risk in financial management? What are major areas of financial risk in your company? Which risk management techniques are important to your company? Why? If a company uses NPV for capital budgeting, how does an analyst adjust for projects of differing risk? If a company, with a normal payback requirem
Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelley Couts, who inherited the company. When it was founded over 70 years ago, the company originally repaired radios and other household appliances. Over the years, the company expanded into manufacturing a
OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $495 million, and would operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $70.8 million (at the end of each year) and its cost of capital is 12.5%. a. The NPV for a discount rate of 2% is _?_ Million (round
Using what you have researched and studied throughout Modules 1 - 7, write a report addressing a quantitative analysis (QA) project. Here, you are asked to select a business of interest and develop QA best practices that can be developed and implemented to increase revenues and/or to decrease costs. Please provide at least thr
Blazer Inc. is thinking of acquiring Laker Company. Blazer expects Laker's NOPAT to be $9 million the first year, with no net new investment in operating capital and no interest expense. For the second year, Laker is expected to have NOPAT of $25 million and interest expense of $5 million. Also, in the second year only, Laker wi
Calculate NPV and IRR for a Replacement. A firm is considering an investment in a new machine with a price of $12 million to replace its existing machine. The current machine has a book value of $4 million and a market value of $3 million. The new machine is expected to have a four-year life, and the old machine has 4 years left
In 2000, the company bid on a U.S. Navy contract to supply 100,000 canvas "sea bags" a year for five years. MMS bid $25 per bag, fixed for five years. The plant was fully depreciated on MMS' books, except for the $10,000 cost of the land (bought in 1947). The company had turned down $900,000 for the land in 1995 from a real
1. Six years ago, Torrence Hardware paid a contractor $45,000 to expand the store. At that time, the company calculated a net present value of about $6,000 for the expansion. Now, the company believes that the investment increased annual cash inflows by $8,000 per year for each of the six years. Torrence has a desired rate of
1) Jackson Company has a target capital structure of 40% debt and 60% common equity. The company's before-tax cost of debt is 12% and its marginal tax rate is 40%. The current stock price is $22.50; the last dividend was $2.00 and the dividend is expected to grow at 7%. What will be the firm's cost of common equity and WACC?
The management of Opry Company, a wholesale distributor of suntan products, is considering the purchase of a $25,000 machine that would reduce operating costs in its warehouse by $4,000 per year. At the end of the machine's 10-year useful life, it will have no scrap value. The company's required rate of return is 12% REQUIRED
The Metropolitan Transit Authority (MTA) has included a cafeteria car on the passenger train it operates. Yearly operations of the cafeteria car has shown a consistent loss, which is expected to persist, as follows: Revenues (in cash) $200,000 Expe
You are thinking about opening a car dealership. You bought some real estate last year for $700,000 which you will use for the dealership. The market value of this real estate today is $1,200,000. To build the necessary showroom and shop it will cost you $600,000, a cost which you will depreciate over 3 years. You estimate an in
(Ignore income taxes in this problem) Lett Corporation is investigating buying a small used aircraft for the use of its executives. The aircraft would have a useful life of 7 years. The company uses a discount rate of 15% in its capital budgeting. The net present value of the investment, excluding the salvage value of the aircra
Imagine that you are a senior manager of a company operating in Hong Kong in a highly innovative and competitive market with an annual turnover of US$500,000,000 and that you have a first draft of what can be a good business opportunity with an estimated investment (sunk) cost of US$50,000,000. Your intuition is that it might
A sunk cost is: the value of an asset currently owned by a firm. a cost for which there is no alternative option. another name for a fixed cost. a cost that has already been incurred and cannot be recouped. a form of erosion. Fun Land is considering adding a miniature golf course to its facility. The course w
a. You are offered an investment with returns of $2,237 in year 1, $3,748 in year 2, and $3,493 in year 3. The investment will cost you $8,746 today. If the appropriate Cost of Capital (quoted interest rate) is 9.8%, what is the Profitability Index of the investment? b. You are offered an investment with returns of $1,595 i
See attached file for template. Capital budgeting assignment: Calculate the expected value of the company's debt in one year with and without the expansion based on values in Excel spreadsheet. The answers are to go in the gray cells along with the formulas showing how the answer was derived. Probability "Without ex
Please see attached for the case. Here are the requirements: 1. Forecast revenues both in the local and export markets (forecasting revenues in the export market is complicated by fluctuations in the exchange rates involved and the price elasticity factor). 2. The cost structure should be differentiated in terms of the loc
You purchased land 3 years ago for $84000 and believe its market value is now $93000. You are considering building a hotel on this land instead of selling it. To build the hotel, it will initially cost you $128000, an expense that you plan to depreciate straight line over the next three years. Wells Fargo offered you a loan for
A firm uses a single discount rate to compute the NPV of all its potential capital budgeting projects, even though the projects have a wide range of nondiversifiable risk. The firm then undertakes all those projects that appear to have positive NPVs. Briefly explain why such a firm would tend to become riskier over time.
1. Discuss how the concept of "the time value of money" is critical when making capital investment decisions. 2. Discuss "cost of capital" and its relevance when making capital investment decisions. 3. Suppose that a firm must choose between two mutually exclusive projects, both of which have negative NPV. Explain how a firm
You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck. The truck's basic price is $50,000, and it will cost another $10,000 to modify it for special use by your firm. The truck falls into the MACRS five-year class {MACRS rates as percentages: 20, 32, 1
See the attached file. Capital Budgeting and Long-Term Financing Decisions 1. We will open a business that requires the following three steps; we will need to find a viable location, market the product, and borrow money from the local bank. All three steps must be successful and the probability of success for the location is
The Philadelphia Clinic, a for-profit medical facility is planning to spend $45,000 for modernized X-ray equipment. It will replace equipment that has zero book value and no salvage value, although the old equipment would have lasted another 7 years. The new equipment will save $16,000 in cash operating costs for each of t
1. What are some specific examples of projects or decisions, which could be made, using, and discounted cash flows analysis within your company or business experience? 2. Why is inflation not a consideration when the basic concept that money has time value is discussed? Inflation does play a role, when determining the spec
Scenario: Two mutually exclusive projects are being considered. First, a short-term project (a project which most of its cash inflows come in relatively soon) may have a higher ranking under NPV if the cost of capital is high (NPV Decision rules mutually exclusive projects: Accept the project with the highest positive NPV). Howe
Can you help me with this assignment? Fundamentals of Financial Management 12-2: PROJECT CASH FLOW Eisenhower Communications is trying to estimate the first-year net cash flow (at Year 1) for a proposed project. The financial staff has collected the following information on the project: Sales revenues $10 million O
#1. What is the preferred method of ranking different capital projects? Why is it preferred? #2. What are the elements of working Capital management? What might you do as a manager to control each element? #3. Why would firms wish to hold cash and/or marketable securities?
Problem 16 A company is considering two alternative methods of producing a new product. The relevant data concerning the alternatives are presented below: Alternative Alternative I II Initial investment $64,000 $120,000 Annual receipts $50,000 $60