Question
In: Finance
Unless stated otherwise, interest is compounded annually, and payments occur at the end of the period....
Unless stated otherwise, interest is compounded annually, and payments occur at the end of the period. Face value for bonds is $1000.
10. (15) Ghost Screams is considering a new product line. It requires a new machine that will cost $24,000,000. The machine will be fully depreciated to a zero-book value on a straight-line basis over 3 years. The project will generate $72,000,000 in revenues each year for 3 years. Variable costs are 75% of sales and fixed costs are $5,000,000 per year for 3 years. They will have $2,000,000 annually in interest expense as part of the financing. The initial investment in net working capital is $5,000,000. No additional net working capital is needed for the project and no net working capital will be returned. The variable and fixed costs do not include the depreciation and the interest expenses. There is no horizon value. The tax rate is 25%.
a. If the cost of capital is 8%, find the net present value.
b. Find the internal rate of return.
c. Do they accept the project? Explain.
Solutions
Expert Solution
C. They wont accept the project as the NPV is negative
jeff jeffy answered 1 year agoRelated Solutions
Unless stated otherwise, interest is compounded annually, and payments occur at the end of the period....
Unless stated otherwise, interest is compounded annually, and
payments occur at the end of the period. Face value for bonds is
$1000.
Financial Statements and
Forecasting
(15) You have the following information for Houdini Homes for
Year 0:
Houdini Homes: Income Statement (M$)
Y0
Y1
Sales
1400
Cost of Goods Sold
700
SG&A (Selling, General and Admin) Expenses
200
Depreciation Expense
86
Earnings Before Interest & Tax (EBIT)
414
Interest Expense
34
Earnings Before Tax
380
Taxes (25%)
95
Net...
Interest is compounded annually unless stated otherwise. Payments are at the end of the year unless...
Interest is compounded annually unless stated otherwise.
Payments are at the end of the year unless stated otherwise. All
bonds have a face value of $1000. Taxes are 0 unless specified
otherwise.
2. A project has a beta of 1.3. The risk-free return is 2% and
the return on the market is 12%. The project has an IRR of 14%.
a) If the firm’s cost of capital is 10%, will they take the
project using the cost of capital?
b)...
Interest is compounded annually unless stated otherwise. Payments are at the end of the year unless...
Interest is compounded annually unless stated otherwise.
Payments are at the end of the year unless stated otherwise. All
bonds have a face value of $1000. Taxes are 0 unless specified
otherwise.
Use the following information to estimate the weights for the
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From the balance sheet: Assets = 800M. Debt = 200M and Equity =
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Interest is compounded annually unless stated otherwise. Payments are at the end of the year unless...
Interest is compounded annually unless stated otherwise.
Payments are at the end of the year unless stated otherwise. All
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growing by 15% until year 2. After year 2, the growth rate falls to
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support answer. All cash flows are end-of-period unless otherwise stated . 9. You are working on your...
support answer. All cash flows are end-of-period
unless otherwise stated .
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schedule that showed elements from a row from that schedule:
Payment# =100
Amount = $1,932.90
Interest = ???
Principal = $709.30
Balance = $244,010.90
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Info given: Interest is expected to be 10% per year unless stated otherwise. Effective tax rate...
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Cash flows are end-of-period unless otherwise specified.
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Required:
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What is the amount of interest and principal on the loan’s
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A food chemist analyzed the calorie content for a
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