1. Tubby Toys estimates that its new line of rubber ducks will generate sales of $7.50 million, operating costs of $4.50 million, and a depreciation expense of $1.50 million. If the tax rate is 30%, what is the firm’s operating cash flow? (Enter your answer in millions rounded to 2 decimal places.)
2. Maturity Risk Premium
The real risk-free rate is 2.5%, and inflation is expected to be 2.75% for the next 2 years. A 2-year Treasury security yields 8.75%. What is the maturity risk premium for the 2-year security? Round your answer to two decimal places.