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You have been asked by the president of your company to evaluate the proposed acquisition of a new spectrometer for the firm's R&D department.
If total costs consisted of a fixed cost of $10,000 per year and variable costs of $95 per unit, and if only the variable costs were expected to increase .
Now conduct a sensitivity analysis to determine the sensitivity of NPV to changes in the sales price, variable costs per unit, and number of units sold.
Using decision tree analysis, should Kim proceed with the project today or should it wait a year before deciding?
Using decision tree analysis, does it make sense to wait 2 years before deciding whether to drill?
What factors should a company consider when it decides whether to invest in a project today or to wait until more information becomes available?
Write out the decision tree and use decision tree analysis to calculate the expected NPV of this project including the option to continue.
Fethe's Funny Hats is considering selling trademarked curly orange-haired wigs for University of Tennessee football games.
Firms with relatively high nonfinancial fixed costs are said to have a high degree of what?
If a firm went from zero debt to successively higher levels of debt, why would you expect its stock price to first rise, then hit a peak.
Would the new situation expose the firm to more or less business risk than the old one?
What is the firm's WACC and total corporate value under each capital structure?
What is BEA's unlevered beta? Use market value D/S when unlevering. What are BEA's new beta and cost of equity if it has 40 percent debt?
Booth's fixed assets were used to only 50 percent of capacity during 2006, but its current assets were at their proper levels.
How large a sales increase can the company achieve without having to raise funds externally?
Total assets and accounts payable are proportional to sales and that relationship will be maintained.
Define the weighted average cost of capital, after-tax cost of debt.
Distinguish between beta (or market) risk, within-firm (or corporate) risk, and stand-alone risk for a potential project.
David Ortiz Motors has a target capital structure of 40 percent debt and 60 percent equity.
Tunney Industries can issue perpetual preferred stock at a price of $50 a share. The issue is expected to pay a constant annual dividend of $3.80 a share.
Javits & Sons' common stock is currently trading at $30 a share. The stock is expected to pay a dividend of $3.00 a share at the end of the year.
Calculate the after-tax cost of debt under each of the conditions-Interest rate, 13 percent; tax rate, 0 percent.
What is a financial option? What is the single most important characteristic of an option?
The going rate of interest on new long-term debt, rd, is 10 percent, and this is the present yield to maturity on the bonds.
Growth is expected to be constant after 2008. The weighted average cost of capital is 11 percent.