[40%] (c) Discuss why P/E multiples are in general negatively correlated with risk and positively correlated with growth. [20%] Question 2 Mr. Smith wants to invest in two shares: share X and share Y. Share X has an expected return of 12% with a variance of 0.0096, and share Y has an expected return of 9% with a variance of 0.0081. Suppose the covariance between X and Y is -0.0034. Calculate the expected return and standard deviation of his portfolio if he invests: (a) 40% in share X and 60% in share Y.
What are the annual projected free cash flows? What is the NPV of the project, assuming the firm was entirely equity financed? What discount rate is appropriate? The annual projected free cash flows and NPV are highlighted below. Assuming the project is entirely equity-financed, using the unlevered cost of capital (rA) as the discount rate would be appropriate.
He believes that the premoney valuation of the company should be at least $10 million based on the potential profitability of the company and the successful efforts to date in lining up several key sponsorships with national retailers. You have been hired by Chapin as a consultant to advice on the valuation and how to negotiate with Biddle. Please use the following topics as a GUIDELINE ONLY: 1. How good an investment opportunity is Mindersoft? What are the key strengths and weaknesses of the opportunity and business plan?
For financial reporting purposes, the two most popular methods of accelerated depreciation are the declining balance method and the sum-of-the-years’ digits method. For tax purposes, the allowable methods of accelerated depreciation depend on the tax law that the taxpayer is subject to. In the United States, the two currently allowable depreciation methods for tax purposes are both accelerated depreciation methods (ACRS and MACRS). As a simple example, a company buys a generator that costs $1,000 that is expected to last for 10 years. Under the most simple form of depreciation, the company might allocate $100 of the cost of the generator to its expenses every year, until the $1000 capital expense has been "used up."
Additionally, IRR and the payback period were also considered. Although the company would not be able to adhere to company policy in paying back the investment within five years, a calculated IRR of 13%, which exceeds the WACC by 3.1%, and the project’s NPV of $97,987 both imply that acquiring the Vulcan Mold-Maker will add value to the firm. Uncertainties associated with acquiring the new project were also taken into consideration by conducting a sensitivity analysis and accounting for an annual inflation rate of 3%. In the event that negotiations with labor unions fail, the net present value of the project would diminish to -$411,073 negating the project’s value creation potential. A 3% nominal annual inflation rate almost doubles the NPV and increases the IRR, however, the project would be as equally as attractive as it was before inflation since both costs and benefits increase by the inflation rate of 3%.
How could the introduction of new models that achieve greater unit sales actually reduce profits earned by the Audi division (or any luxury brand manufacturer/retailer)? 3. What factors are likely driving Audi to invest in production facilities outside of Germany? This assignment is worth 10 points. 1.
d. List at least four operating costs your business might have. (1.0 points) Rent Utilities Inventory Payroll e. Consider the industry of your company and the current economy, and then explain how these factors might impact your company’s sales. If you do not think these factors would impact your sales, explain why they wouldn't. (2-4 sentences. 2.0 points) f. If you had $5,000 to start this company, which department would get the most funding?
The firm is currently having problems cost effectively meeting run length requirements as well as meeting quality standards. The general manager has proposed the purchase of one of two large six-color presses designed for long, high-quality runs. The purchase of a new press would enable LI to reduce its cost of labor and therefore the price to the client, putting the firm in a more competitive position. The key financial characteristics of the old press and the two new presses are summarized in what follows. Old press – Originally purchased 3 years ago at an installed cost of $400,000, it is being depreciated under MACRS using a 5-year recovery period.
Eisenhower communications is trying to estimate the first-year net operating cash flow (at year 1) for a proposed project. The financial staff has collected the following information on the project: Sales revenue $10 million Operating costs (excluding depreciation) $ 7 million Depreciation $ 2 million Interest expense $ 2 million The company has a 40 percent tax rate, and its WACC is 10 percent a. What is the project’s operating cash flow for the first year? b. If this project would cannibalize other projects by $1 million of cash flow before taxes per year.
The corporation profit are tax twice once at the corporation level and at a personal level. * The advantages of corporation are limited liability for the owners. Which means if anything happen to the company the company is the only one accountable the owners or shareholder personal belong does not get affected. * Another advantage is ease of transferring ownership. An example of this is the corporation can sell new shares of stock and attract new investors.