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B&B has a new baby powder ready to market. If the firm goes directly to the market with the product, there is only a 65 percent chance of success. However, the firm can conduct customer segment research, which will take a year and cost $1.19 million. By going through research, B&B will be able to better target potential customers and will increase the probability of success to 80 percent. If successful, the baby powder will bring a present value profit (at time of initial selling) of $18.9 million. If unsuccessful, the present value payoff is only $5.9 million. The appropriate discount rate is 13 percent. |
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Calculate the NPV for the firm if it conducts customer segment research and if it goes to market immediately. (Enter your answers in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
| NPV | |
| Market immediately | $ |
| Research option | $ |
In: Finance
Do Internet research to calculate capital intensity ratio for General Motors company in 2017. Then do the same for Google company in 2017.
Then reflect on capital intensity ratio for both companies, and identify one positive and negative point about capital intensive firms.
In your paper, submit your numbers for both firms in 2017 on (i) Capital Intensity Ratio, (ii) Sales, and (iii) total assets. MAKE SURE TO SHOW YOUR AS TO HOW YOU GOT YOUR FIGURES.
Hint: Capital intensity ratio is the reciprocal of total asset turnover.
In: Finance
Explain Product life cycle theory of trade and provide examples of products that have gone through this cycle
In: Finance
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Suppose your company needs $17 million to build a new assembly line. Your target debt−equity ratio is .75. The flotation cost for new equity is 10 percent, but the flotation cost for debt is only 7 percent. Your boss has decided to fund the project by borrowing money because the flotation costs are lower and the needed funds are relatively small. |
| a. |
What is your company’s weighted average flotation cost, assuming all equity is raised externally? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| Flotation cost | % |
| b. |
What is the true cost of building the new assembly line after taking flotation costs into account? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) |
| Amount raised | $ |
In: Finance
Discuss the advantages and disadvantages of operating and financial leverage.
In: Finance
One bond has a coupon rate of 7.2%, another a coupon rate of 8.6%. Both bonds pay interest annually, have 14-year maturities, and sell at a yield to maturity of 8.0%. a. If their yields to maturity next year are still 8.0%, what is the rate of return on each bond? (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.)
| Bond 1 | Bond 2 | |||
| Rate of return | ................ | % | ...................... | % |
Does the higher-coupon bond give a higher rate of return over this period?
Yes
No
In: Finance
Simon recently received a credit card with a 12% nominal interest rate. With the card, he purchased an Apple iPhone 7 for $369.49. The minimum payment on the card is only $20 per month.
If Simon makes the minimum monthly payment and makes no other charges, how many months will it be before he pays off the card? Do not round intermediate calculations. Round your answer to the nearest whole number.
month(s)
If Simon makes monthly payments of $65, how many months will it be before he pays off the debt? Do not round intermediate calculations. Round your answer to the nearest whole number.
month(s)
How much more in total payments will Simon make under the $20-a-month plan than under the $65-a-month plan. Do not round intermediate calculations. Round your answer to the nearest cent.
$
In: Finance
Suppose your company needs to raise $36.3 million and you want
to issue 23-year bonds for this purpose. Assume the required return
on your bond issue will be 8.8 percent, and you’re evaluating two
issue alternatives: an 8.8 percent semiannual coupon bond and a
zero coupon bond. Your company’s tax rate is 35 percent. Both bonds
would have a face value of $1,000.
a. How many of the coupon bonds would you need to
issue to raise the $36.3 million? (Do not round
intermediate calculations and round your answer to the nearest
whole number, e.g., 32.)
Number of coupon bonds
How many of the zeroes would you need to issue? (Do not
round intermediate calculations and round your answer to 2 decimal
places, e.g., 32.16.)
Number of zero coupon bonds
b. In 23 years, what will your company’s repayment
be if you issue the coupon bonds? (Enter your answer in
dollars, not millions of dollars, e.g., 1,234,567. Do not round
intermediate calculations and round your answer to the nearest
whole number, e.g., 32.)
Coupon bonds repayment
$
What if you issue the zeroes? (Enter your answer in
dollars, not millions of dollars, e.g., 1,234,567. Do not round
intermediate calculations and round your answer to the nearest
whole number, e.g., 32.)
Zero coupon bonds repayment
$
c. Assume that the IRS amortization rules apply
for the zero coupon bonds.
Calculate the firm’s aftertax cash outflows for the first year
under the two different scenarios. (Input a cash outflow as
a negative value and a cash inflow as a positive value. Enter your
answers in dollars, not millions of dollars, e.g., 1,234,567. Do
not round intermediate calculations and round your answers to 2
decimal places, e.g., 32.16.)
| Coupon bond cash flow | $ |
| Zero coupon bond cash flow | $ |
In: Finance
18-1 Beedles Inc. needed to raise $14 million in an IPO and chose Security Brokers Inc. to underwrite the offering. The agreement stated that Security Brokers would sell 3 million shares to the public and provide $14 million in net proceeds to Beedles. The out-of-pocket expenses incurred by Security Brokers in the design and distribution of the issue were $300,000. What profit or loss did Security Brokers incur if the issue were sold to the public at the following average price?
a. $5 per share
b. $6 per share
c. $4 per share
In: Finance
Your bank is offering you an account that will pay 22 % interest (an effective two-year rate) in total for a two-year deposit. Determine the equivalent discount rate for the following periods: a. Six months b. One year c. One month (Note: Be careful not to round any intermediate steps less than six decimal places.) a. Six months The equivalent discount rate for a period length of six months is. (Round to two decimal places.)
In: Finance
Where do your taxes go? Does knowing this information make you happier paying taxes or would you prefer your tax money not go to some of these expenses, if so which ones and why?
In: Finance
Q5. The information below provides details of an off-exchange tailor-made loan obtained by Royal Oceania Cruises to fund their operations.
Today is June 30 2019, which is the initiation date of the loan.
The Commonwealth Bank is loaning money to Royal Oceania Cruises.
The amount borrowed is $50 million.
The maturity date of the loan is three years.
A minimum interest payment of $1 million is due in each financial year. The financial
year ends on 30 June each year.
The nominal interest rate associated with this loan is the Reserve Bank of Australia
cash rate (as at June 30 2019) plus a margin of 3.75%. This interest rate is compounded monthly and is fixed from the initiation date.
Assume the following payments are made by Royal Oceania Cruises during the term of the loan:
Monthly repayments of $2 million at the end of each month beginning on January 31 2020 until April 30 2021 (inclusive).
May 31 2021: a single payment of $2 million.
April 30 2022: a single payment of $10 million.
Given such payments, your job is to determine the outstanding value of the loan on the maturity date.
In: Finance
XYZ Ltd. has developed a new product which is expected to have a life of five years before it becomes obsolete. The project would be terminated after five years. The plant and equipment is expected to have a salvage value of $500,000 at the end of the project’s life. The company is in the tax bracket of 30 per cent and required return for this project is 15 per cent. XYZ Ltd. has put together the following information about the product:
Cost of new plant and equipment $7,900,000
Transport and installation costs $100,000
Unit Sales:
Year Units Sold
1 70,000
2 120,000
3 140,000
4 80,000
5 60,000
Sales Price per Unit:
Years 1-4 $300
Year 5 $260
Variable Cost per Unit $180
Annual Fixed Costs $200,000
Net Working Capital:
An initial investment of $100,000 in net working capital is required to start the project. Additionally, net working capital equal to 10 per cent of the value of sales will be required each year including year one.
a) Calculate the yearly cash flows and the yearly net after-tax cash flow related to the project
b) Calculate the Net Present Value
In: Finance
What is the duration of a 2-year bond that pays a coupon of 8% per annum semiannually? It has a face value of $100. The yield on the bond is 10% per annum with continuous compounding.
In: Finance
A company currently pays a dividend of $3.25 per share (D0 = $3.25). It is estimated that the company's dividend will grow at a rate of 16% per year for the next 2 years, and then at a constant rate of 7% thereafter. The company's stock has a beta of 1.25, the risk-free rate is 3%, and the market risk premium is 6%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer to the nearest cent.
In: Finance