QUESTION RiverRocks realizes that it will have to raise the financing for the acquisition of Raft Adventures (described in Problem 19) by issuing new debt and equity. The firm estimates that the direct issuing costs will come to $7 million. How should it account for these costs in evaluating the project? Should RiverRocks go ahead […]
QUESTION At the beginning of 2007, Apples beta was 1.4 and the risk-free rate was about 4.5%. Apples price was $84.84. Apples price at the end of 2007 was 198.08. If you estimate the market risk premium to have been 6%, did Apples managers exceed their investors required return as given by the CAPM? Required […]
QUESTION Thoma Pharmaceutical Company may buy DNA testing equipment costing $60,000. This equipment is expected to reduce labor costs of clinical staff by $20,000 annually. The equipment has a useful life of five years but falls in the three-year property class for cost recovery (depreciation) purposes. No salvage value is expected at the end. The […]
QUESTION Covan, Inc., is expected to have the following free cash flows: Year 1 2 3 4 p FCF 10 12 13 14 Grow by 4% per year a. Covan has 8 million shares outstanding, $3 million in excess cash, and it has no debt. If its cost of capital is 12%, what should its […]
QUESTION Carbide Chemical Company is considering the replacement of two old machines with a new, more efficient machine. It has determined that the relevant after-tax incremental operating cash flows of this replacement proposal are as follows:END OF YEAR0123Cash flows$404,424$86,890$106,474$91,612END OF YEAR45678Cash flows$84,801$84,801$75,400$66,000$92,400What is the projects net present value if the required rate of return is […]
QUESTION Elmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of dollars) ( see MyFinanceLab for the data in Excel format ): 1 Year 1 2 2 Revenues 125 160 3 Operating […]
QUESTION The Fresno Finial Fabricating Works is considering automating its existing finial casting and assembly department. The plant manager, Mel Content, has accumulated the following information for you: The automation proposal would result in reduced labor costs of $150,000 per year. The cost of defects is expected to remain at $5,000 even if the new […]
QUESTION You are an intern with Ford Motor Company in its corporate finance division. The firm is planning to issue $50 million of 12% annual coupon bonds with a ten-year maturity. The firm anticipates an increase in its bond rating. Your boss wants you to determine the gain in the proceeds of the new issue […]
QUESTION 1. If a six- month Treasury bill is purchased for $ 0.9675 on a dollar ( i. e., $ 96,750 for a $ 100,000 bill), what is the discount yield, the annual rate of interest, and the compound rate? What will these yields be if the discount price falls to $ 0.94 on a […]
QUESTION Assume today is August 1, 2010. Natasha Kingery is 30 years old and has a Bachelor of Science degree in computer science. She is currently employed as a Tier 2 field service representative for a telephony corporation located in Seattle, Washington, and earns $38,000 a year that she anticipates will grow at 3% per […]
