Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Corporate Finance Expert

problem1) Innovation Company is thinking about marketing a new software product. Upfront costs to market and develop the product are $5 million. The product is expected to generate profits of $1 million per year for 10 years. The company will have to provide product support expected to cost $100,000 per year in perpetuity. Assume all profits and expenses occur at the end of the year.

a) What is the NPV of this investment if the cost of capital is 6%? Should the firm undertake the project?

b) Can the IRR rule be used to evaluate this investment? describe!

problem2) Suppose Intel’s stock has an expected return of 26% and a volatility of 50%, while Coca Cola’s has an expected return of 6% and volatility of 25%. Further, assume that these two stocks are perfectly negatively correlated (i.e., their correlation coefficient is −1).

a) find out the portfolio weights that remove all risk

b) If there are no arbitrage opportunities, what is the risk-free rate of interest

problem3)

a) How can we examine, using empirical data, whether the market is efficient. Describe carefully the research setting.

b) How can we examine using empirical data whether the strong form of market efficiency holds. Describe carefully various research settings. c) Why do firms rely heavily on internal funds? Put differently, why do firms rather not issue stock to finance a project?

Daboera Inc. is considering the launch of a new hybrid car, GREEN.

• GREEN is expected to sell 100,000 units for 2 years. (That is, 100,000 in year 1 and 100,000 in year 2)

• The retail price is €200.

• The cost to produce a single unit of GREEN is €80.

RED, which is an older model of Daboera Inc would have sold 20,000 units in year 1 and 20,000 units in year 2 for €150. However, the introduction of GREEN will reduce the sales of RED by 25%. The cost to produce a single unit of RED is €100.

a) find out the incremental gross profit for each year (i.e., find out the change in gross profit as a result of the introduction of GREEN).

For the following problems assume the following facts:

• The R&D costs of GREEN are €2.5 million and paid upfront (i.e., in year 0). Note that the firm should expense R&D costs as incurred to comply with the financial standards.

• Daboera Inc. will spend €3.25 million on marketing to increase consumer awareness during year both 1 and 2.

• Storage of GREEN parts requires the use of a warehouse, which the firm already owns. This warehouse could be rented out for 500,000 per year during year both 1 and 2.

• Production of GREEN requires an upfront investment of €9 million in order to buy the needed equipment. For tax purposes we need to assume that the equipment has a three-year life and that the firm uses straight-line depreciation for the new equipment.

• Income tax is 40%.

• Daboera Inc. is not allowed to carry forward or carry back losses. Therefore, negative taxes are assumed to be cash inflows (at the end of the year).

• Revenues and costs are paid at the end of the year.

b) find out the incremental unlevered income (income after taxes, assuming that the project is equity-financed). For the following problems assume the aforementioned and the following facts:

• Net working capital each year is 20% of gross profit.

• The opportunity cost of capital is 12%

c) Should Daboera Inc. accept or reject the project? Motivate your answer by calculating the Net Present Value.

Corporate Finance, Finance

  • Category:- Corporate Finance
  • Reference No.:- M9684

Have any Question? 


Related Questions in Corporate Finance

Eisner amusement parks reported the following data in its

Eisner Amusement Parks reported the following data in its most recent annual report: Sales $42.5 million Net Income $3.8 million Dividends $1.1 million Assets $ 50.0 million Eisner is financed 100 percent with equity. Wh ...

Write a letter about no longer volunteeringyou own kitco

Write a letter about no longer volunteering. You own Kitco Inc., a small financial consulting firm in Baton Rouge, Louisiana. For the last 12 years, some of your employees have voluntarily prepared and served a Thanksgiv ...

Bruce honiballs inventionit was another disappointing year

Bruce Honiball's Invention It was another disappointing year for Bruce Honiball, the manager of retail services at the Gibb River Bank. Sure, the retail side of Gibb River was making money, but it didn't grow at all in 2 ...

1 you are in charge of preparing a comprehensive budget for

1. You are in charge of preparing a comprehensive budget for your firm. Indicate how financial ratios can help determine an acceptable comprehensive budget. 2. List four popular forms of graphs used by accountants. 3. Li ...

Change your cover letter to an email messagechange a cover

Change your cover letter to an email message. Change a cover letter you wrote previously (or the one you wrote for Exercise) to a version you'll send as an email. What changes will you make in the salutation and formatti ...

Determine which type of visual is best-for the following

Determine which type of visual is best:- For the following situations, select the most appropriate visual aid for presenting the data, and explain why it is the best option. Consider a line chart, bar chart, pie chart, t ...

Write a letter to refuse a favor for a colleagues sonassume

Write a letter to refuse a favor for a colleague's son. Assume the role of vice president of operations for Kolor Kosmetics, a small manufacturer in Biloxi, Mississippi. One of your colleagues from the local chamber of c ...

1 how would stephanies credit management decisions be

1. How would Stephanie's credit management decisions be different if she were a single mother of two children? 2. How would Stephanie's credit management decisions be affected if she were 35 years old? If she were 50 yea ...

1 around the world utilities generally have the highest

1. Around the world, utilities generally have the highest dividend payouts of any industry, yet they also tend to have massive investment programs to finance through external funding. How do you reconcile high payouts an ...

Revise a previous messagebring in a one-page message email

Revise a previous message Bring in a one-page message (email, memo, or letter) you have written in the past. Exchange papers with other students (so that you're not revising the paper of the person who is revising yours) ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro