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uranmaximum [27]
2 years ago
13

The Bull Company, a lawn mower manufacturer, is considering the introduction of a new model. The initial investment required is

$22 million. Net cash flows over the 4-year life cycle and the corresponding certainty-equivalents of the new model are as follows:Year Net Cash Flow Certainty-equivalent Factor1 $15 million 0.902 $13 million 0.803 $11 million 0.604 $9 million 0.35The firm's cost of capital is 14% and the risk-free rate is 6%. Bull uses the certainty-equivalent approach in evaluating above-average risk investments such as this one. What is the project's certainty-equivalent NPV?a. $4,164,432.44b. $26,164,432.44c. $8,028,394.34d. $30,028,394.34
Business
1 answer:
TEA [102]2 years ago
5 0

Answer:

Option d. $30,028,394.34

Explanation:

We can calculate certainty equivalent NPV by just a simple formula

Certainly equivalent NPV = Certain cashflow/(1+r)^n

Certain cashflows =Net cashflows x Certainty equivalent factor

r = risk free rate

At first, we need to find certain cash flows

Certain cash flow

Year1: $15,000,000  x 0.90  = $13,500,000

Year2: $13,000,000  x 0.80 = $10,400,000

Year 3: $11,000,000 x  0.60  = $6,600,000

Year 4: $9,000,000 x 0.35  =$3,150,000.

Certainly Equivalent NPV = [$13,500,000 / (1+0.06)^1] + [$10,400,000 / (1+0.06)^2] + [$6,600,000 / (1+0.06)^3] + [$3,150,000 / (1+0.06)^4]

Certainly Equivalent NPV = $12,735,849.06 + $9,255,962.98 + $5,541,487.27 + $2,495,095.04 = $30,028,394.34

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Suppose Rocky Brands has earnings per share of ​$2.33 and EBITDA of ​$29.3 million. The firm also has 5.3 million shares outstan
posledela

Answer:

enterprise value to EBITDA.

Explanation:

The computation of the value of the stock using P/E ratio is shown below:-

Stock value = (P/E ratio × EPS) × Number of shares outstanding

= (12.9 × $2.33) × 5.3 million

= 159.3021 million

Now, the computation of the value of the stock using EBITDA multiple is shown below:-

Stock value = (EBITDA multiple × EBITDA) - Net debt

= (7.1 × $29.3 million) - $125 million

= 208.03 - $125 million

= 83.03

There is no equivalent corporate debt. It is easier to make a comparison at the operating level and thus a better measure of valuation is the enterprise value to EBITDA.

3 0
3 years ago
Which of the following best explains why resources need to be allocated in the game of economic? A) Natural resources are often
Sladkaya [172]

Answer:

The best explanation for the need to allocate resources in the game of economics is that:

C) There are not enough resources to produce all of the goods and services that everyone wants.

Explanation:

In economics, it has been established that human needs are insatiable and that the resources to meet the needs are not readily and sufficiently available.  This is the bedrock of Economics.  It is the reason that Economics is studied as a separate course.  Scarcity and needs are important concepts in human interactions.  Therefore, the ability to allocate scarce resources to enable the production of goods and services is key to human development.

3 0
2 years ago
Assume the spot Swiss franc is $0.7000 and the six-month forward rate is $0.6950. What is the minimum price that a six-month Ame
Rama09 [41]

Answer:

2 cents

Explanation:

The spot price = $0.7000 = 70 cents, The forward rate = $0.6950 = 69.5 cents and the call option with striking price = $0.6800 = 68.00 cents

The annualized six month rate = 3 1/2 % = 3.5 %, therefore the rate = r/n, where n is the number of period per year = 2. Therefore r/n = 3.5% / 2 = 0.035 / 2 = 0.0175

The minimum price = Maximum (spot price - striking price, (forward rate - striking price) / (1 + 0.0175), 0) = Maximum(70 - 68, (69.5 - 68)/ 0.0175, 0)

Minimum price = Maximum (2 , 1.47, 0) = 2 cents

4 0
3 years ago
If a monopolist or a perfectly competitive firm is producing at a break-even point, then:
Klio2033 [76]
If a monopolist or a perfectly competitive firm is producing at break-even point then they're basically equaling their average revenue to the average total cost - ii.

This basically means that they are operating at a level where the amount which they produce relates to the amount they spend. 
4 0
3 years ago
A "Name That Tune" contest has a grand prize of $500,000. However, the contest stipulates that the winner will receive just $200
Alexxx [7]

Answer:

The correct answer is (C) $401,302

Explanation:

To get how much the contest winner actually won, we have to calculate the amount receive at the end of each year discounted at this moment. Then,  we added  all the payments.  

For example, the first payment in  $200,000 at this moment,  so we add  $200,000.  

At the end of the first year we receive $30,000, and the rate of discount is 8%

The formula of discount is P=A/ (1+r)ⁿ

A=Final amount  

P= Principal

r= interest rate

n= time

Year 1 = A/ (1+r)ⁿ =$30,000/1,08¹= 27777,77

Year 2 =$30,000/1,08²= 25720,16

Year 3=23814,96

Year 4=22050,89

Year 5=20417,49

Year 6=18905,08

Year 7=17504,71

Year 8=16208,06

Year 9=15007,46

Year 10=13895,80

 

Total  401302,44

3 0
2 years ago
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