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Define capital rationing, and explain why it can occur in the real world.
Calculate the annual MACRS depreciation for a $20,000 truck that qualifies as a 5-year MACRS asset. The truck is estimated to have a $7,000 salvage value 6 years from now.
Capital Rationing how are soft rationing and hard rationing different? What are the implications if a firm is experiencing soft rationing? Hard rationing?
Ranny, Inc. has sales of $14,900, costs of $5,800, depreciation expense of $1,300, and interest expense of $780. If the tax rate is 40 percent, what is the operatng cash flow, or OCF?
Eastgate Electronics is considering a new product line that would require an investment of $140,000 in equipment and $180,000 in working capital. Store managers expect the following pattern of net c
Discuss what valuable information would be lost if you decided to use book values in order to calculate the cost of each of the capital components within a firm's capital structure.
Discuss the interpretation of the degree of accounting operating leverage and degree of pretax cash flow operating leverage.
Describe the role that the mix of variable versus fixed costs has in the variation of earnings before interest and taxes (EBIT) for the firm.
Describe why it is not usually appropriate to use the coupon rate on a firm's bonds to estimate the pretax cost of debt for the firm.
Assume that MM's theory holds with taxes. There is no growth, and the $40 of debt is expected to be permanent. How much of the firm's value is accounted for by the debt-generated tax shield?
The ratio of total assets to sales is constant at .60, and profit margin is 6.2%. If the firm also wishes to maintain a constant debt-equity ratio, what must it be?
Describe how the profitability index approach may be used by a firm faced with a capital rationing investment funds constraint.
Describe how the pretax operating cash flow break-even point discussed in this chapter is related to the break-even point that makes the NPV of a project equal to zero.
You have been provided with the following data: D1 = $0.67; P0 = $27.50; and g = 8.00% (constant). What is the cost of common from retained earnings based on the DCF approach?
Price and yield An 8 percent semi annual coupon bond matures in 5 years. this bond has a face value of $1,000 and a yield of 8.23 percent. What are the bonds price and YTM?
You have been provided with the following data: D0 = $0.80; P0 = $22.50; and g = 8.00% (constant). Based on the DCF approach, what is the cost of common from retained earnings?
income statement report EBITDA $7.5 Million & $1.8 Million of net income. Interest Expense $2 million and 40% corp Tax. What is the depreciation and amortization expense?
The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds.
The real risk free rate is 3% and inflation is expected to be 3% for the next 2 years. A 2 year treasury security yields 6.3%. What is the maturity risk premium for the 2 year security?
Explain the advantages and disadvantages of debt financing and why an organization would choose to issue stocks rather than bonds to generate funds
A $1,230 investment has the following expected cash returns: Compute the internal rate of return for this project.
The bond has a face value of $1000. and has an 8% annual coupon. The bond has a current yield rate of 8.21 precent. What is the bonds yield to maturity.
Because depreciation is not a cash flow, why is it important in capital budgeting evaluation techniques that use discounted cash flows?
Briarcrest Condiments is a spice-making firm. Recently, it developed a new process for producing spices. The process requires new machinery that would cost $1,968,450, have a life of five years, and
Now assume rRF remains at 9% but rM (1) increases to 16% or (2) falls to 13%. The slope of the SML does not remain constant. How would these changes affect ri?