We are evaluating a project that costs $837,367, has an eight-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 61,080 units per year. Price per unit is $39, variable cost per unit is $18, and fixed costs are $419,261 per year. The tax rate is 35%, and we require a return of 21% on this project. In dollar terms, what is the sensitivity of NPV to changes in the units sold projection?
In: Finance
To exploit a passive investing 'bubble' how would shorting the funds through buy puts or sell calls work? Or would incorporating a small cap index be better - how would this work? What would be the best investment strategy to exploit it?
In: Finance
Describe situations in which you might use a certified check, cashier’s check, or money order.
In: Finance
| An all-equity firm is considering the following projects: |
| Project | Beta | IRR | |||
| W | .80 | 9.3 | % | ||
| X | .90 | 11.4 | |||
| Y | 1.10 | 12.1 | |||
| Z | 1.35 | 15.1 | |||
| The T-bill rate is 4 percent, and the expected return on the market is 12 percent. |
| a. | Which projects have a higher expected return than the firm’s 12 percent cost of capital? |
| b. | Which projects should be accepted? |
| c. |
Which projects will be incorrectly accepted/rejected or correctly accepted/rejected if the firm's overall cost of capital were used as a hurdle rate? |
In: Finance
|
Your firm is contemplating the purchase of a new $395,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $30,000 at the end of that time. You will be able to reduce working capital by $35,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. Assume the tax rate is 21 percent. |
| a. | Suppose your required return on the project is 10 percent and your pretax cost savings are $135,000 per year. What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| b. | Suppose your required return on the project is 10 percent and your pretax cost savings are $95,000 per year. What is the NPV of the project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
In: Finance
|
Pappy’s Potato has come up with a new product, the Potato Pet (they are freeze-dried to last longer). Pappy’s paid $120,000 for a marketing survey to determine the viability of the product. It is felt that Potato Pet will generate sales of $835,000 per year. The fixed costs associated with this will be $204,000 per year, and variable costs will amount to 20 percent of sales. The equipment necessary for production of the Potato Pet will cost $865,000 and will be depreciated in a straight-line manner for the 4 years of the product life (as with all fads, it is felt the sales will end quickly). This is the only initial cost for the production. Pappy’s has a tax rate of 23 percent and a required return of 13 percent. Calculate the payback period, NPV, and IRR. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Enter your IRR answer as a percent.) |
In: Finance
Discuss and explain briefly about each examples of the terms
below in a consumer contract that might be unfair:
• a term that permits, or has the effect of permitting, one party
(but not another party) to avoid or limit performance of the
contract;
• a term that permits, or has the effect of permitting, one party
(but not another party) to terminate the contract.
• a term that penalises, or has the effect of penalising, one party
(but not another party) for a breach or termination of the
contract;
• a term that permits, or has the effect of permitting, one party
(but not another party) to vary the terms of the contract;
• a term that permits, or has the effect of permitting, one party
(but not another party) to renew or not renew the contract;
.: a term that permits, or has the effect of permitting, one party
to vary the upfront price payable under the contract without the
right of another party to terminate the contract; .,.
• a term that permits, or has the effect of permitting, one party
unilaterally to vary the characteristics of the goods or services
to be supplied, or the interest in land to be sold or granted,
under the contract;
• a term that permits, or has the effect of permitting, one party
unilaterally to determine whether the contract has been breached or
to interpret its meaning;
• a term that limits, or has the effect of limiting, one party's
vicarious liability for its agents;
• a term that permits, or has the effect of permitting, one party
to assign the contract to the detriment of another party without
that other party's consent;
• a term that limits, or has the effect of limiting, one party's
right to sue another party;
• a term that limits, or has the effect of limiting, the evidence
one party can adduce in proceedings relating to the contract;
• a term that imposes, or has the effect of imposing, the
evidential burden on one party in proceedings relating to the
contract;
• a term of a kind, or a term that has an effect of a kind,
prescribed by the regulations.
In: Finance
|
Aria Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: |
| Year | Unit Sales | |
| 1 | 71,500 | |
| 2 | 87,800 | |
| 3 | 104,300 | |
| 4 | 89,200 | |
| 5 | 75,300 | |
|
Production of the implants will require $1.5 million in net working capital to start and additional net working capital investments each year equal to 15 percent of the projected sales increase for the following year. Total fixed costs are $2.15 million per year, variable production costs are $230 per unit, and the units are priced at $375 each. The equipment needed to begin production has an installed cost of $20.5 million. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as seven-year MACRS (MACRS Table) property. In five years, this equipment can be sold for about 20 percent of its acquisition cost. AAI has a 21 percent tax rate and a required return on all its projects of 15 percent. |
| a. | What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| b. | What is the IRR? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
In: Finance
|
Bausch Company is presented with the following two mutually exclusive projects. The required return for both projects is 15 percent. |
| Year | Project M | Project N |
| 0 | –$140,000 | –$359,000 |
| 1 | 61,500 | 159,300 |
| 2 | 73,400 | 168,400 |
| 3 | 68,100 | 154,800 |
| 4 | 40,500 | 110,400 |
| a. |
What is the IRR for each project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| b. | What is the NPV for each project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| c. | Which, if either, of the projects should the company accept? |
In: Finance
|
A proposed cost-saving device has an installed cost of $565,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes. The required initial net working capital investment is $40,000, the tax rate is 23 percent, and the project discount rate is 12 percent. The device has an estimated Year 5 salvage value of $55,000. What level of pretax cost savings do we require for this project to be profitable? MACRS schedule (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
In: Finance
|
Doak Corp. is evaluating a project with the following cash flows. The company uses a discount rate of 11 percent and a reinvestment rate of 8 percent on all of its projects. |
| Year | Cash Flow | |||
| 0 | –$ | 32,600 | ||
| 1 | 11,520 | |||
| 2 | 14,670 | |||
| 3 | 11,270 | |||
| 4 | 10,940 | |||
| 5 | – | 4,230 | ||
|
Calculate the MIRR of the project using all three methods with these interest rates. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
In: Finance
|
The Yurdone Corporation wants to set up a private cemetery business. According to the CFO, Barry M. Deep, business is “looking up.” As a result, the cemetery project will provide a net cash inflow of $164,000 for the firm during the first year, and the cash flows are projected to grow at a rate of 4.7 percent per year forever. The project requires an initial investment of $1,825,000. |
| a. |
If Yurdone requires a return of 12 percent on such undertakings, what is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| b. | The company is somewhat unsure about the assumption of a 4.7 percent growth rate in its cash flows. At what constant growth rate would the company just break even if it still required a return of 12 percent on its investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
In: Finance
| A project that provides annual cash flows of $2,620 for eight years costs $9,430 today. |
| a. | At a required return of 8 percent, what is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| b. | At a required return of 24 percent, what is the NPV of the project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| c. | At what discount rate would you be indifferent between accepting the project and rejecting it? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
In: Finance
Some characteristics of the determinants of nominal interest rates are listed as follows. Identify the components (determinants) and the symbols associated with each characteristic:
|
Characteristic |
Component |
Symbol |
|---|---|---|
| This is the premium added as a compensation for the risk that an investor will not get paid in full. | ||
| This is the premium added to the equilibrium interest rate on a security that cannot be bought or sold quickly enough to prevent or minimize loss. | ||
| As interest rates rise, bond prices fall, and as interest rates fall, bond prices rise. Because interest rate changes are uncertain, this premium is added as a compensation for this uncertainty. | ||
| This is the rate for a short-term riskless security when inflation is expected to be zero. | ||
| This is the rate for a riskless security that is exposed to changes in inflation. | ||
| Over the past several years, Germany, Japan, and Switzerland have had lower interest rates than the United States due to lower values of this premium. |
In: Finance
You are considering a project that will cost $50,000 to set up, and will pay out $18,000 1, 2, 3
and 4 years from today. The unlevered beta for this project is 1.2, the risk free rate is 6.5%, and
the expected return on the S&P 500 is 15%. Corporate taxes are 25%.
a.
What is the unlevered cost of equity for this project?
b. What is the NPV of this project if you finance with all equity?
c.
You are considering borrowing $30,000 to finance this project, with repayment in 4
years. You could normally borrow at 7.5%. The Nebraska state government has offered
to lend you the money at 6%. What is the adjusted present value of this project if you
take the subsidized loan?
In: Finance