Q: What are the benefits of merging and diversifying one's assets in order to lower one's risk?
A: Merger is reflective of a corporate event in which companies are coming together with each other to…
Q: One year ago, your company purchased a machine used in manufacturing for $110,000. You have learned…
A: Initial Cost of old machine = $110,000 Initial Cost of new machine = $150,000 Depreciation for old…
Q: years and a t for the firs 201
A: On a financial statement, a capitalised cost is an item that is added to the cost base of a fixed…
Q: annual premiums. What would be the future value of the annual savings over ten years based on an…
A: Future Value: It represents the future worth of the present amount of cash flow and is estimated by…
Q: Find the final amount of money in an account if $3,900$3,900 is deposited at 7.5%7.5% interest…
A: Calculations are done in excel, so there is no intermediate rounding. (1+i) = (1+i(2)2))^2(1+i) =…
Q: Define Long-term financing.
A: Finance is needed by business and corporations to keep the day to day activities efficiently going.…
Q: You own a stock portfolio invested 25 percent in Stock Q, 15 percent in Stock R, 10 percent in Stock…
A: Portfolio beta will be reflective of the systematic risk of the portfolio and it cannot be…
Q: what is the payback in this investment, assuming that the savings accrue over the whole year?
A: Payback period refers to the period within which the sum invested by the company in a project will…
Q: Shredder Frets, a brand-new manufacturer of guitars is looking at what price to charge for its new…
A: Break Even Point - It is the level of sales where the company earn no profit and no loss. at this…
Q: (a) A sum of $2000 is deposited in a time-deposit account that pays interest at a rate of 3% per…
A: Here we will use the concept of time value of money. As per the concept of time value of money the…
Q: If the current USDJPY exchange rate is 135.00 Japanese yen per U.S. dollar, the price of a Big Mac…
A: The law of one price is a concept which will advocate for uniform price across different nation for…
Q: For the year ended December 31, 201A Inventories Trade and associated company Short term investment…
A: Current ratio shows the liquidity of the firm and show the position of working capital of the…
Q: A worker has a daily rate of Php347, he needs to finish the tasks for 12 days, what would be total…
A: Direct Labor costs include the cost paid to the employees for a task/ project. This is a direct cost…
Q: exchange rate regime,
A: The exchange rate refers to the price of the money of a country and relates to the value of…
Q: Explain the term Collateral.
A: Assets refer to those resources which have some economic value held by a corporation, individual or…
Q: What will be the value of these deposits 12 years later if earning 9% APR compounded annually?
A: Time value of money (TVM) refers to the method or technique which is used to measure the amount of…
Q: (Using the CAPM to find expected returns) Sante Capital operates two mutual funds headquartered in…
A: CAPM model is used to calculate the expected return by using risk-free rate, market return and the…
Q: 1. Create and Income Statement with schedules for BLAZING ENTERPRISES for the Year Ended December…
A: Income statement is also known as Profit and Loss account and it shows all incomes and all expenses…
Q: The firms in the petroleum industry of a country have decided to coope other by dividing the market…
A: Business collusion will be reflective of all such secretive agreement between two business parties…
Q: Use the Buying a Car information above to answer this question. The rebate offer is $3500, and you…
A: Calculation of the monthly payment if the rebate is chosen and secure a loan for the balance at the…
Q: 2. These options are traded in the market: call option with an Exercise (Strike) Price of 1.15 $/€…
A: Strike price is 1.15 $/∈ Premium of Call option is 0.03 $ per Euro Spot price is 1.17 $/∈ To Find:…
Q: board of dir company s preferre issues. Also, assume that the corporation's board of directors votes…
A: Preferred Stock: These are stocks providing ownership in the firm and have a higher claim on…
Q: installment loan at 18%. The final payment is to be made on $238.42 principal.what is the final…
A: A vehicle, home, or college degree can all be financed with an installment loan. After a lender…
Q: 10. Mary Canfield purchased the All-Canadian Compound bond fund. While this fund doesn't charge a…
A: Contingent deferred sales load (CDSL) refers to a load or sales charge which is charged on the…
Q: yellow Fire had Net Income for the year just ended of $1,850, and the firm paid out $500 in cash…
A: Net Income is of $1,850 Cash dividend paid are $500 Common shares out standing are 10,000 Current…
Q: A stock has a beta of 1.05, the expected return on the market is 14 percent, and the risk-free rate…
A: Stock Beta is 1.05 Expected return on market is 14% Risk free rate is 7.7% To Find: Expected return…
Q: Blue Sun has net working capital of $800, current liabilities of $3,550, and inventory of $3,400.…
A: The current ratio is a ratio which is calculated using the current assets and current liabilities.
Q: pays a 9.75% nominal rate on deposits, with monthly compounding. What effective annual rate (EFF%)…
A: The effective annual rate can be computed as follows :- EAR = (1+i / x)^x - 1 = (1 + 0.0975/12)^12…
Q: Why has Macro-prudential policy increased in use following the GFC? Provide explanations in detail…
A: The GFC refers to the Global Financial Crisis. It occurred in the year 2008 when the subprime…
Q: How much money would you have in savings if you kept $200 on deposit for eight years at 8%,…
A: Money Deposited now (present Value) is $200 Time period is 8 years Interest rate is 8% Compounded…
Q: Suppose you are currently spending $42.20 per month on streaming entertainment services such as…
A: Time value of money (TVM) refers to the method or technique which is used to measure the amount of…
Q: What is meant by a line of credit?
A: Credit refers to the concept is being defined as the financial agreement where the borrowers receive…
Q: Flotation costs and the cost of debt Currently, Warren Industries can sell 15-year, $1,000-par-value…
A: Annual Coupon rate is 12% Par Value is $1,000 Market Interest rate of similar bonds are 12%…
Q: Mr X borrowed P100k at 5% per month payable in 60 equal end the month payments. a). How much of the…
A: Loan Amount P 1,00,000.00 Time Period (Months) 60 Interest rate (Months) 5%
Q: It is expected that the beta of industries that are highly cyclical will be ________ and that of…
A: The beta of the stock reflect the risk associated with it and higher beta represents higher risk and…
Q: What are the projected sales for the last year before the sale?
A: Future Value: It represents the future worth of the present amount of cash flow. It is calculated…
Q: You purchased a laptop computer worth PhP 37,500 by a 30% down payment and agreed to repay the…
A: Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only one…
Q: Industrial Industries' 2023 balance sheet shows current assets of $1,400 and current liabilities of…
A: Net investment in working capital can be calculated as: = Working Capital 2023 - Working Capital…
Q: a) What is the annual dollar amount of interest that you receive from your bond investment? b)…
A: Bond Price: The price of the bond is computed by discounting the par value of the bond and the…
Q: Your current account balance is $7,500. You invested $6,300 5 years ago. What rate of return did…
A: Answer) Future value = P×(1+r)^n r is interest rate P is amount n is years Given: Future value =…
Q: Markov Manufacturing recently spent $15 million to purchase some equipment used in the manufacture…
A: "Hi, Thanks for the Question. Since you asked multiple sub parts question, we will answer first…
Q: Romeo manufacturing co has total sales at 120,000. Its direct labor cost is 15,000, which represents…
A: Prime Costs and Conversion Costs: Prime costs are characterized as the expenditure…
Q: A public school is being renovated for $16.2 million. The annual value of these benefits is…
A: Initial Cost = $16.2 million Annual Benefits = $5.8 millions MARR = 20% Time Period = 40 Years
Q: A firm whose cost of capital is 10% is considering two mutually exclusive projects X and Y, the…
A: NPV refers to Net Present Value.It is calculated by subtracting the present value of cash inflows…
Q: an Asset's Value You purchased an asset that is expected to provide $5,000 cash flow per year for 4…
A: Here, Cash Flow is $5,000 Time Period is 4 years Required Rate of Return is 6%
Q: Suppose you want to have $800,000 for retirement in 20 years. Your account earns 6% interest. How…
A: Solution:- When an equal amount is deposited each period, it is called annuity. Future value of…
Q: A sum of $2000 is deposited in a time-deposit account that pays interest at a rate of 3% per annum.…
A: a) Given: Principal "P" = $2000 Interest arte per annum "r" = 3% Number of years "t" = 2
Q: Assume you own a bond which will mature in 9 years and has a yield to maturity which is less than…
A: Yield to maturity (YTM) - It is the average rate of return over the holding period till maturity…
Q: ASSETS FOREIGN CURRENCY FINANCIAL ASSETS International reserves Deposits with foreign banks Other…
A: Inventory : Inventory refers to the items or goods that any business holds with the objective of…
Q: California Resource Corporation has a bond outstanding with a coupon interest rate of 6 percent that…
A: Present value/ price of a bond In case of a bond, a series of equal payment of coupon is made at…
You are the financial analyst for a tennis racket manufacturer. The company is considering using a graphite like material in its tennis rackets. The company has estimated the information in the following table about the market for a racket with the new material. The company expects to sell the racket for four years. The equipment required for the project has no salvage value. The required return for projects of this type is 12 percent, and the company has a 34 percent tax rate. |
Pessimistic | Expected | Optimistic | |||||||||||
Market size | 121,000 | 136,000 | 161,000 | ||||||||||
Market share | 21 | % | 24 | % | 26 | % | |||||||
Selling price | $ | 144 | $ | 149 | $ | 155 | |||||||
Variable costs per unit | $ | 98 | $ | 93 | $ | 92 | |||||||
Fixed costs per year | $ | 959,000 | $ | 914,000 | $ | 884,000 | |||||||
Initial investment | $ | 1,248,000 | $ | 1,180,000 | $ | 1,112,000 | |||||||
Calculate the NPV for each case for this project |
Step by step
Solved in 5 steps with 6 images
- Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.Talbot Industries is considering launching a new product. The new manufacturing equipment will cost 17 million, and production and sales will require an initial 5 million investment in net operating working capital. The companys tax rate is 40%. a. What is the initial investment outlay? b. The company spent and expensed 150,000 on research related to the new product last year. Would this change your answer? Explain. c. Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for 1.5 million after taxes and real estate commissions. How would this affect your answer?Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $17 million, and production and sales will require an initial $5 million investment in net operating working capital. The company’s tax rate is 25%. What is the initial investment outlay? The company spent and expensed $150,000 on research related to the new product last year. What is the initial investment outlay? Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for $1.5 million after taxes and real estate commissions. What is the initial investment outlay?
- Although the Chen Company’s milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $110,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $19,000 per year. It would have zero salvage value at the end of its life. The project cost of capital is 10%, and its marginal tax rate is 25%. Should Chen buy the new machine?Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?The Aubey Coffee Company is evaluating the within-plant distribution system for its new roasting, grinding, and packing plant. The two alternatives are (1) a conveyor system with a high initial cost but low annual operating costs and (2) several forklift trucks, which cost less but have considerably higher operating costs. The decision to construct the plant has already been made, and the choice here will have no effect on the overall revenues of the project. The cost of capital for the plant is 8%, and the projects’ expected net costs are listed in the following table: What is the IRR of each alternative? What is the present value of the costs of each alternative? Which method should be chosen?
- The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has an initial after-tax cost of 170,000. The project will produce 1,000 cases of mineral water per year indefinitely, starting at Year 1. The Year-1 sales price will be 138 per case, and the Year-1 cost per case will be 105. The firm is taxed at a rate of 25%. Both prices and costs are expected to rise after Year 1 at a rate of 6% per year due to inflation. The firm uses only equity, and it has a cost of capital of 15%. Assume that cash flows consist only of after-tax profits because the spring has an indefinite life and will not be depreciated. a. What is the present value of future cash flows? (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.) What is the NPV? b. Suppose that the company had forgotten to include future inflation. What would they have incorrectly calculated as the projects NPV?Hemmingway, Inc. is considering a $5 million research and development (R&D) project. Profit projections appear promising, but Hemmingway’s president is concerned because the probability that the R&D project will be successful is only 0.50. Furthermore, the president knows that even if the project is successful, it will require that the company build a new production facility at a cost of $20 million in order to manufacture the product. If the facility is built, uncertainty remains about the demand and thus uncertainty about the profit that will be realized. Another option is that if the R&D project is successful, the company could sell the rights to the product for an estimated $25 million. Under this option, the company would not build the $20 million production facility. The decision tree follows. The profit projection for each outcome is shown at the end of the branches. For example, the revenue projection for the high demand outcome is $59 million. However, the cost of the R&D project ($5 million) and the cost of the production facility ($20 million) show the profit of this outcome to be $59 – $5 – $20 = $34 million. Branch probabilities are also shown for the chance events. Analyze the decision tree to determine whether the company should undertake the R&D project. If it does, and if the R&D project is successful, what should the company do? What is the expected value of your strategy? What must the selling price be for the company to consider selling the rights to the product? Develop a risk profile for the optimal strategy.I know that its the thing to do, insisted Pamela Kincaid, vice president of finance for Colgate Manufacturing. If we are going to be competitive, we need to build this completely automated plant. Im not so sure, replied Bill Thomas, CEO of Colgate. The savings from labor reductions and increased productivity are only 4 million per year. The price tag for this factoryand its a small oneis 45 million. That gives a payback period of more than 11 years. Thats a long time to put the companys money at risk. Yeah, but youre overlooking the savings that well get from the increase in quality, interjected John Simpson, production manager. With this system, we can decrease our waste and our rework time significantly. Those savings are worth another million dollars per year. Another million will only cut the payback to about 9 years, retorted Bill. Ron, youre the marketing managerdo you have any insights? Well, there are other factors to consider, such as service quality and market share. I think that increasing our product quality and improving our delivery service will make us a lot more competitive. I know for a fact that two of our competitors have decided against automation. Thatll give us a shot at their customers, provided our product is of higher quality and we can deliver it faster. I estimate that itll increase our net cash benefits by another 2.4 million. Wow! Now thats impressive, Bill exclaimed, nearly convinced. The payback is now getting down to a reasonable level. I agree, said Pamela, but we do need to be sure that its a sound investment. I know that estimates for construction of the facility have gone as high as 48 million. I also know that the expected residual value, after the 20 years of service we expect to get, is 5 million. I think I had better see if this project can cover our 14% cost of capital. Now wait a minute, Pamela, Bill demanded. You know that I usually insist on a 20% rate of return, especially for a project of this magnitude. Required: 1. Compute the NPV of the project by using the original savings and investment figures. Calculate by using discount rates of 14% and 20%. Include salvage value in the computation. 2. Compute the NPV of the project using the additional benefits noted by the production and marketing managers. Also, use the original cost estimate of 45 million. Again, calculate for both possible discount rates. 3. Compute the NPV of the project using all estimates of cash flows, including the possible initial outlay of 48 million. Calculate by using discount rates of 14% and 20%. 4. CONCEPTUAL CONNECTION If you were making the decision, what would you do? Explain.