1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
FromTheMoon [43]
3 years ago
13

You are a consultant to a large manufacturing corporation considering a project with the following net after-tax cash flows (in

millions of dollars): Years from Now After-Tax CF 0 –30 1–9 15 10 30 The project's beta is 1.9. Assuming rf = 4% and E(rM) = 14% a. What is the net
Business
1 answer:
irakobra [83]3 years ago
4 0

What is the net present value of the project? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

Answer:

Present Value = $22.47 million

Explanation:

Given

After-tax cash flows (in millions of dollars):

Years from Now || After-Tax CF

0 || 30

1–9 || 15

10 || 30

Project Beta = β = 1.9

Risk free rate = rf = 4%

Market Return = E(rM) = 14%

First, we calculate the expected return

Expected return is calculated as

Expected Return = Risk free rate + Project Beta * (market return - risk free rate)

Expected Return = rf + β (E(rM) - rf)

Expected return = 4% + 1.9 * (14% - 4%)

Expected Return = 4% + 1.9(10%)

Expected Return = 0.04 + 1.9(0.1)

Expected Return = 0.04 + 0.19

Expected Return = 0.23

Expected Return = 23%

I = 23%

The Present Value of Annuity is calculated as

PV = - Payment for year 0 + Payment for year 1 - 9 + Payment for year 10

For Year 0, Payment Value = 29

For Year 1 - 9;

PV = Payment per period + [ 1 - (1+i)^-n ]/i

Where n = 9 and I = 24%

Payment per period = 15

PV = 15 + [ 1 - (1 + 23%)^-9]/23%

PV = 18.67

For Year 10

PV = Payment per period + [ 1 - (1+i)^-n ]/i

Where n = 10 and I = 24%

Payment per period = 15

PV = 30 + [ 1 - (1 + 23%)^-10]/23%

PV = 33.80

PV = - Payment for year 0 + Payment for year 1 - 9 + Payment for year 10

Becomes

PV = -30 + 18.67 + 33.80

PV = 22.47

Present Value = $22.47 million

You might be interested in
The fabric costs $14.00 per yard.if you buy 5 yards or more, you can get 20% off.how much would five yards cost on sale?
Rasek [7]
If you were to buy 5 yards at $14 a yard, your first cost would be at $70. But with 14 being 20% of 70, you would subtract 14 out of the $70, which would leave your final cost at $56.
7 0
3 years ago
"The US government decides to lower military expenditures to reduce the budget deficit.What effect would you expect this shock t
algol13

Answer:

A decrease in military investment by the government, with the aim of lowering public spending, would in turn mean a decrease in aggregate demand, as less money would be inserted into society, which would reduce outputs and, due to the reduction in demand, it would also reduce inflation.

Public expenditure, in economy, indicates the complex of money of public origin that is used by the government in public goods and/or public services aimed at pursuing public purposes, such as military expenditures for national defense. These are therefore the outputs by the government and therefore an item of liabilities within the national budget, the coverage of which is necessarily entrusted to taxation on taxpaying citizens or public debt.  If public expenditure is not adequately covered by the revenue of a non-sovereign state (e.g. taxation), it enters a typical financial situation of public deficit.

8 0
3 years ago
Company X had net income of $200,000 in the year 2016. At the beginning of 2016, there were 500,000 shares of outstanding common
EleoNora [17]

Answer:

Basic earning per share $0.21 per share

Explanation:

Basic Earning per share = ( Net Income - Preferred stock dividend ) / Weighted Average outstanding shares

Basic Earning per share = ( $200,000 - $50,000 ) / 700,000

Basic Earning per share = $150,000 / 700,000

Basic Earning per share = $0.2143 / share

Weighted average Outstanding shares = 500,000 + 200,000

Weighted average Outstanding shares = 700,000 shares

5 0
3 years ago
The Company is in the process of evaluating a new product using the following information: ∙ A new transformer has three product
Bad White [126]

Answer:

total loss for first year = ($96,000)

Explanation:

direct costs per 5,000 transformers = $55,000, or $11 per unit

indirect manufacturing overhead per 5,000 transformers = $45,000 or $9 per unit

destination charges per transformer = $2 each

customer service expenses = $0.40 per transformer

sales price:

year 1 = $20 x 15,000 = $300,000

year 2 = $24 x 15,000 = $360,000

year 3 = $28 x 15,000 = $420,000

total revenue = $1,080,000

total costs:

development costs = $45,000

setup costs = $15,000 x 3 per year x 3 years = $135,000

direct costs = $11 x 45,000 units = $495,000

manufacturing overhead costs = $9 x 45,000 = $405,000

sales and administrative costs = $2.40 x 45,000 = $108,000

total = $1,188,000

total operating life cycle loss = $1,080,000 - $1,188,000 = -$108,000

life cycle operating loss for first year:

total revenue = $300,000

- setup costs = $45,000

- direct costs = $165,000

- manufacturing overhead costs = $135,000

- S&A costs = $36,000

- 1/3 of development costs = $15,000

total loss = -$96,000

4 0
3 years ago
Ending inventory is equal to the cost of items on hand plus: a. Items in transit sold f.o.b. shipping point. b. Purchases in tra
guapka [62]

Answer:

C) Items in transit sold f.o.b. destination.

Explanation:

Ending inventory = all items in hand plus all purchases bought FOB shipping point plus all sales sold FOB destination.

FOB shipping point means that the title of the goods is transferred once the goods leave the seller's warehouse.

FOB destination point means that the title of the goods is transferred only after the goods arrive to the buyer's warehouse.

8 0
3 years ago
Other questions:
  • A "good," according to the UCC is all of the following EXCEPT _____.
    9·1 answer
  • Over the past two years a cloud service consumers have made 24,531 attempts to invoke a cloud service's reporting capability. of
    9·1 answer
  • The mass exodus of more affluent caucasians from urban to suburban areas is sometimes referred to as
    6·1 answer
  • During March, the production department of a process manufacturing system completed a number of units of a product and transferr
    11·1 answer
  • The balance in the equipment account is $4,900,000, and the balance in the accumulated depreciation—equipment account is $2,646,
    11·1 answer
  • The following information is available for Mergenthaler Corporation for the year ended December 31, 2022:
    10·1 answer
  • Interest is the cost of borrowing. <br> a. True<br> b. False
    10·1 answer
  • Buying Paint April is at the hardware store and must decide whether to buy paint in 11 individual quart cans or to buy it in bot
    15·1 answer
  • At the end of the current year (before adjusting entries), Autumn Corporation had a balance of $76,000 in Accounts Receivable an
    15·1 answer
  • The first of two significant fiscal policy initiatives enacted by the government during the great recession, signed in february
    13·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!