Problem 11-06 New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $880,000, and it would cost another $19,000 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after 3 years for $566,000. The machine would require an increase in net working capital (inventory) of $20,000. The sprayer would not change revenues, but it is expected to save the firm $366,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 35%.
a. What is the Year 0 net cash flow? $
b. What are the net operating cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar.
Year 1 $
Year 2 $
Year 3 $
c. What is the additional Year 3 cash flow (i.e, the after-tax salvage and the return of working capital)? Do not round intermediate calculations. Round your answer to the nearest dollar. $
d. If the project's cost of capital is 15 %, what is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest dollar. $ Should the machine be purchased?
In: Finance
You own a 10-year, $1 comma 000 par value bond paying 7 percent interest annually. The market price of the bond is $900, and your required rate of return is 10 percent.
a. Compute the bond's expected rate of return.
b. Determine the value of the bond to you, given your required rate of return.
c. Should you sell the bond or continue to own it?
In: Finance
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 7 percent, and that the maximum allowable payback and discounted payback statistics for the project are 2.0 and 3.0 years, respectively. Time: 0 1 2 3 4 5 6 Cash flow: –$8,900 $1,070 $2,270 $1,470 $1,470 $1,270 $1,070 Use the IRR decision rule to evaluate this project. (
In: Finance
You find the following corporate bond quotes. To calculate the number of years until maturity, assume that it is currently January 15, 2016. The bonds have a par value of $2,000. Company (Ticker) Coupon Maturity Last Price Last Yield EST $ Vol (000’s) Xenon, Inc. (XIC) 6.100 Jan 15, 2027 94.253 ?? 57,369 Kenny Corp. (KCC) 7.190 Jan 15, 2026 ?? 5.28 48,948 Williams Co. (WICO) ?? Jan 15, 2033 94.805 6.98 43,809 What price would you expect to pay for the Kenny Corp. bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Price $ What is the bond’s current yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Current yield %
In: Finance
You find the following Treasury bond quotes. To calculate the number of years until maturity, assume that it is currently May 2016. The bonds have a par value of $1,000. Rate Maturity Mo/Yr Bid Asked Chg Ask Yld ?? May 21 103.5397 103.5275 +.3235 5.899 6.002 May 26 104.4887 104.6344 +.4233 ?? 6.138 May 36 ?? ?? +.5340 3.931 In the above table, find the Treasury bond that matures in May 2036. What is the asked price of this bond in dollars? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Asked price $ If the bid-ask spread for this bond is .0637, what is the bid price in dollars? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Bid price $
In: Finance
You find the following Treasury bond quotes. To calculate the number of years until maturity, assume that it is currently May 2016. The bonds have a par value of $1,000. Rate Maturity Mo/Yr Bid Asked Chg Ask Yld ?? May 26 103.5488 103.6370 +.3041 2.369 5.324 May 31 104.4978 104.6435 +.4317 ?? 6.173 May 41 ?? ?? +.5431 4.071 In the above table, find the Treasury bond that matures in May 2026. What is the coupon rate for this bond? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Coupon rate %
In: Finance
Bill Smith, CFO of Acme Inc., is evaluating a new project that costs $125,000 and is expected to last 6 years. The required return on this project is 15%, compounded monthly. This project is expected to earn the same cash flow each month over the life of the project. In order to be indifferent between accepting and rejecting this project, the monthly cash flow must be: A) $2,004.34 B) $2,942.65 C) $2,752.47 D) $1,736.11 E) $2,643.13
need steps and explanation
In: Finance
Using the information provided in the following table, find the value of each asset:
The value of Asset A is
The value of Asset B
The value of Asset C
The value of Asset D
The value of Asset E
|
Asset |
End of Year |
Amount |
Appropriate required return |
|
|
A |
1 |
$ |
7,000 |
8% |
|
2 |
7,000 |
|||
|
3 |
7,000 |
|||
|
B |
1 through∞ |
$ |
500 |
4% |
|
C |
1 |
$ |
0 |
5% |
|
2 |
0 |
|||
|
3 |
0 |
|||
|
4 |
0 |
|||
|
5 |
48,000 |
|||
|
D |
1 through 5 |
$ |
1,200 |
4% |
|
6 |
8,200 |
|||
|
E |
1 |
$ |
3,000 |
7% |
In: Finance
A bond currently sells for 104% of par value and has a yield to maturity of 8.22 percent. The bond natures in 5 years and pays interest semi annually. What is the coupon rate on the bond?
In: Finance
A firm has a total debt of 10 million, and equity of 15 million. The company pays 8% interest on the debt and return on equity is 14%. If the tax rate of the company is 35%, calculate the cost of capital for the company?
In: Finance
You are considering a project with an opportunity cost of 10% and that offers up the following two possible payouts based on your ability to market the product:
In the optimistic state you expect the following payouts, -$4,795, $8,000, $8,000. Based on your pessimistic expectations you expect the following -$4,795, -$500, -$10,000. The cash flows fall at time period 0, 1 and 2.
Your sense is that there is a 40% chance things will turn out well and a 60% chance things will turn out poorly. What is your expected NPV if you are able to abandon the project after year one?
In: Finance
|
Dorman Industries has a new project available that requires an initial investment of $6.2 million. The project will provide unlevered cash flows of $845,000 per year for the next 20 years. The company will finance the project with a debt-to-value ratio of .25. The company’s bonds have a YTM of 6.3 percent. The companies with operations comparable to this project have unlevered betas of 1.32, 1.25, 1.47, and 1.42. The risk-free rate is 3.3 percent, and the market risk premium is 6.5 percent. The company has a tax rate of 34 percent. |
|
What is the NPV of this project? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| NPV | $ |
In: Finance
How are MNCs subject to political risk? Stated differently, in what manner are MNCs exposed when it comes to political risk?
I. Transfer Risk
II. Operational Risk
III. Control Risk
IV. Presidential Narcissism
Group of answer choices
I, II, III, IV
II & III only
I, II, & III only
I & II only
I, II & IV only
In: Finance
H. Cochran, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2,350,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,290,000 in annual sales, with costs of $1,310,000. Assume the tax rate is 21 percent and the required return on the project is 10 percent.
What is the project’s NPV?
In: Finance
Corporate bonds are classified as “structured” investments; explain their importance to asset portfolios and what is the value of a warrant that is issued with a corporate bond to investors and to the issuing corporation?
Explain with examples.
In: Finance