Cash flow

Assume a firm has earnings before depreciation and taxes of $500,000 and no depreciation. It is in a 40 percent tax bracket. A. Compute its cash flow B. Assume it has $500,000 in depreciation. Recompute its cash flow. C. How large a cash flow benefit did the depreciation provide?

Hamilton Control Systems-NPV of a temporary project:Hamilton Control Systems will invest $90,000 in a temporary project that will generate the following cash inflows for the next three years. If the cost of capital is 10 percent, should the investment be undertaken? Use the net present value method.

Hamilton Control Systems will invest $90,000 in a temporary project that will generate the following cash inflows for the next three years Year 1: $23,000 Year 2: $38,000 Year 3: $60,000 The firm will be required to spend $15,000 to close down the project at the end of three years. If the cost of capital is 10 percent, ...continues

Exchange rates

Primetime Systems, Inc. now has total worldwide revenues of over $820 million forecast for this coming year. You have operations in the United States of $450,000 million with a 12% ROS (return on sales), operations in Germany of 200 million euros with an return on sales (ROS) OF 11%, and operations in Shanghai, China, of 990 mil ...continues

EBITDA

Jones Corp's EBITDA last year was $385,000 (= EBIT + depreciation + amortization), its interest charges were $10,000, it had to repay $25,000 of long term debt, and it had to make a payment of $20,000 under a long term lease. The firm had no amortization charges. What was the EBITDA coverage ratio? a. 7.36 b. 7.69 ...continues

Multiple Choice Questions on Bonds, Risk

1) Franklin Corporation is planning to issue new 20-year bonds. Initially, the plan was to make the bond non-callable. If the bond were made callable after 5 years with a 5% call premium, how would this affect the bond's required rate of return? a. It is impossible to say without more information. b. Because of the ...continues

Stock beta

Stock a has a beta of 1.5 and Stock b has a beta of 0.5. The market is in equilibrium, with required returns equaling expected returns. Which of the following statements is CORRECT? a. Since the market is in equilibrium, the required returns of the two stocks should be the same. b. If expected inflation remains co ...continues

Stock value

Thompson Inc plans to issue preferred stock with a perpetual annual dividend of $2 per share and a par value of $25. If the required return on this stock is currently 8%, what should be the stock?s market value? a. $22.00 b. $23.00 c. $24.00 d. $25.00 e. $26.00 Companies A and B each reported th ...continues

Future value/present value

1) Your aunt offers you a choice of $20,000 in 50 years or $45 today. If money is discounted at 13 percent, which should you chose? 2) If you invest $12,000 today, how much will you have a. in 6 years at 7% b. in 15 years at 12% c. in 25 years at 10% d. in 25 years at 10 percent compounded semian ...continues

Weighted average cost of capital

United Business Forms' capital structure is as follows: Debt-35% Preferred stock-15% Common equity-50 The aftertax cost of debt is 7 percent, the cost of preferred stock is 10 percent, and the cost of common equity (in the form of retained earnings) is 13 percent. Calculate United Business Forms' weighted average cost ...continues

Foreign Exchange Puts and Calls

Task 3a: Problem Set Directions: Type your answer to each question where indicated. Use more space if needed. 1. On Monday morning, an investor takes a long position in pound futures contract that matures on Wednesday afternoon. The agreed-upon price is $1.78 for 62,500 pound sterling. At the close of trading on Monday, ...continues