QUESTION NPV and IRR Benson Designs has prepared the following estimates for a long term project it is considering. The initial investment is $18,250, and the project is expected to yield after-tax cash inflows of $4,000 per year for 7 years. The firm hasa 10% cost of capital.a. Determine the net present value (NPV) for […]
QUESTION Rebecca Isbell Optical Corporation is trying to determine an appropriate capital structure. It knows that, as its financial leverage increases, its cost of borrowing will eventually increase as will the required rate of return on its common stock. The company has made the following estimates for various financial leverage ratios.REQUIRED RATE OF RETURN ON […]
QUESTION Herky Foods is considering acquisition of a new wrapping machine. The initial investment is estimated at $1.25 million, and the machine will have a 5-year life with no salvage value. Using a 6% discount rate, determine the net present value (NPV) of the machine given its expected operating cash inflows shown in the following […]
QUESTION The Totally Tubular Tube Company wishes to evaluate three new investment proposals. The firm is concerned with the impact of the proposals on its total risk. Consequently, it has determined expected values and standard deviations of the probability distributions of possible net present values for the possible combinations of existing projects, E, and investment […]
QUESTION The cost of debt Gronseth Drywall Systems, Inc., is in discussions with its investment bankers regarding the issuance of new bonds. The investment banker has informed the firm that different maturities will carry different coupon rates and sell at different prices. The firm must choose among several alternatives. In each case, the bonds will […]
QUESTION Assume that B (in Problem ) is $3 million and S is $7 million. The bonds have a 14 percent yield to maturity, and the stock is expected to pay $500,000 in dividends this year. The growth rate of dividends has been 11 percent and is expected to continue at the same rate. Find […]
QUESTION Coefficient of variation Metal Manufacturing has isolated four alternatives for meeting its need for increased production capacity. The following table summarizes data gathered relative to each of these alternatives.ExpectedStandard deviationAlternativereturnof returnA20%7.0%B229.5C196.0D165.5a. Calculate the coefficient of variation for each alternative.b. If the firm wishes to minimize risk, which alternative do you recommend? Why? Concept: Coefficient […]
QUESTION Zydeco Enterprises is considering undertaking a special project requiring an initial outlay of $90,000. The project would have a two-year life, after which there will be no expected salvage or terminal value. The possible incremental after-tax cash flows and associated probabilities of occurrence are as follows: Net Cash flows for 1st year= $60,000*0.3= $18,000 […]
QUESTION IntegrativeRisk and valuation Giant Enterprises stock has a required return of 14.8%. The company, which plans to pay a dividend of $2.60 per share in the coming year, anticipates that its future dividends will increase at an annual rateconsistent with that experienced over the 20062012 period, when the following dividends were paid:YearDividend per share2012$2.4520112.2820102.1020091.9520081.8220071.8020061.73a. […]
QUESTION Figurate Industries has 750,000 shares of cumulative preferred stock outstanding. It has passed the last three quarterly dividends of $2.50 per share and now (at the end of the current quarter) wishes to distribute a total of $12 million to its shareholders. If Figurate has 3 million shares of common stock outstanding, how large […]
