QUESTION Risk-adjusted discount ratesBasic Country Wallpapers is considering investing in one of three mutually exclusive projects, E, F, and G. The firms cost of capital, r, is 15%, and the risk-free rate, RF, is 10%. The firm has gathered the basic cash flow and risk index data for each project, as shown in the following […]
QUESTION What is the rationale for the payback method? According to the payback criterion, which franchise or franchises should be accepted if the firms maximum acceptable payback is 2 years, and if Franchises L and S are independent? If they are mutually exclusive? 1. Payback is the time required by the project to cover initial […]
QUESTION Expansion versus replacement cash flows Edison Systems has estimated the cash flows over the 5-year lives for two projects, A and B. These cash flows are summarized in the table below.a. If project A were actually a replacement for project B and if the $12,000 initialinvestment shown for project B were the after-tax cash […]
QUESTION Winston Company issued $1,000,000 of 10-year bonds on December 31, 2006. The bonds have a coupon rate of 12%, with interest paid semiannually on June 30 and December 31. The bonds were priced to yield 14%, and Winston received $893,640 in proceeds. How much interest expense will Winston recognize over the life of the […]
QUESTION Amazon has introduced new Kindle HD six months ago. The following table shows the demand figures for this product (25 in the first month means 25000 units) in the past six months: (a) Compute the values of the intercept a and the slope b from the regression equations. (b) Using regression analysis, forecast the […]
QUESTION Individual costs and WACC Humble Manufacturing is interested in measuring its overall cost of capital. The firm is in the 40% tax bracket. Current investigation has gathered the following data:Debt The firm can raise debt by selling $1,000-par-value, 10% coupon interest rate, 10-year bonds on which annual interest payments will be made. To sell […]
QUESTION Flagstaff Enterprises expected to have free cash flow in the coming year of $8 million, and this freecash flow is expected to grow at a rate of 3% per year perpetually. Flagstaff has an equity cost ofcapital of 13%, a debt cost of capital of 7%, and it is in the 35% corporate tax […]
QUESTION Would you describe Google as a happy ship? Is a happy ship always the most efficient and innovative? Why or why not? Google feels and works towards the happiness of the people who visit it. The replacement of the word ‘search by Google, states that the company has created a vast difference in itself. […]
QUESTION focus on ETHICSChiquitas Slippery SituationFor many people, the little blue Chiquita sticker is as familiar as a bananas yellow peel. One of the worlds two largest banana companies (along with Dole Food Co.), Cincinnati-based Chiquita is a global business with operations on six continents. Chiquita sources its bananas from Latin America, operating banana farms […]
QUESTION Cash acquisition decision Luxe Foods is contemplating acquisition of Valley Canning Company for a cash price of $180,000. Luxe currently has high financial leverage and therefore has a cost of capital of 14%. As a result of acquiring Valley Canning, which is financed entirely with equity, the firm expects its financial leverage to be […]
