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Problem1. Times are tough for Auger Biotech. Having increased $85 million in the initial public offering of its stock early in the year, the company is poised to launch its product. If Auger engages in the promotional campaign costing $60 million this year, its annual after-tax cash flow over the upcoming 5 years will be only $700,000. If it doesn’t undertake the campaign, it expects its after-tax cash flow to be minus $18 million annually for same period. Supposing the company has decided to stay in its selected business, is this camping worthwhile when the discount rate is 10 percent? Why or why not?

Problem2. Your firm’s strategic plan calls for a net raise in total assets of $100 million throughout the upcoming five years, which represents an annual compounded growth rate of 15 percent. Equity growth is also projected to be 15 percent per year. Suppose that the firm’s Total Asset Turnover will average 1.0 in each of the 5 years and Equity Financing percentages will remain stable at 50 percent. The firm projects Reported Income Index values to be 0.85 each year. What is required Total Margin which will make this plan financially feasible?

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M94273

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