2) Vandelay Industries is considering a new project with a 4-year life with the following cost and revenue data. This project will require an investment of $140,000 in new equipment. This new equipment will be depreciated down to zero over 4 years using the simplified straight-line method and has no salvage value. This new project will generate additional sales revenue of $112,000 while additional operating costs, excluding depreciation, will be $68,000. Vandelay's marginal tax rate is 35 percent.
4) Your firm needs to raise $10 million to finance its capital expenditures for the coming year. The firm earned $4 million last year and will pay out half this amount in dividends. If the firm's CFO wants to finance new investments using no more than 40 percent debt financing, how much common stock will the firm have to issue to raise the needed $10 million?
5) Tri-State Enterprises plans to issue commercial paper for the first time in the firm's 35-year history. The firm plans to issue $500,000 in 180-day maturity notes. The paper will carry a 10 ½ percent rate with discounted interest and will cost Tri-State $12,000 (paid in advance) to issue.
What is the effective cost of credit to Tri-State?
What other factors should the company consider in analyzing whether to issue the commercial paper?
6) A McDonald's Big Mac costs 2.44 yuan in China, but costs $4.20 in the United States. Assuming that purchasing-power parity (PPP) holds, how many Chinese yuan are required to purchase 1 U.S. dollar?
7)Suppose 90-day investments in Europe have a 5 percent annualized return and a 1.25 percent quarterly (90-day) return. In the United States, 90-day investments of similar risk have a 7 percent annualized return and a 1.75 percent quarterly returns. In today's 90-day forward market, 1 euro equals $1.32. If interest rate parity holds, what is the spot exchange rate ($/€)?