a. If the appropriate discount rate is 14 percent and all cash flows are received at year's end, what is the price per share of Rite Bite stock? Price per share $ 28.43 b. Rite Bite has decided to produce toothbrushes. The project requires an immediate outlay of $17.8 million. In one year, another outlay of $6.8 million will be needed. The year after that, earnings will increase by $5.0 million. That profit level will be maintained in perpetuity. What will the new stock price be if the project is undertaken? Price per share $ 50.42

a. If the appropriate discount rate is 14 percent and all cash flows are received at year's end, what is the price per share of Rite Bite stock? Price per share $ 28.43 b. Rite Bite has decided to produce toothbrushes. The project requires an immediate outlay of $17.8 million. In one year, another outlay of $6.8 million will be needed. The year after that, earnings will increase by $5.0 million. That profit level will be maintained in perpetuity. What will the new stock price be if the project is undertaken? Price per share $ 50.42

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Development costs of a new product are estimated to be $100,000 per year for five years. Annual profits from the sale of the product, estimated to be $75,000, will begin in the fourth year and each year they will increase by ($10,000 + $10,000*4) through year 15. Compute the present value using an interest rate of 10%. Draw a cashflow diagram.
NPV. Miglietti Restaurants is looking at a project with the following forecasted sales: first-year sales quantity of 33,000, with an annual growth rate of 4.00% over the next ten years. The sales price per unit will start at $41.00 and will grow at 2.00% per year. The production costs are expected to be 55% of the current year's sales price. The manufacturing equipment to aid this project will have a total cost (including installation) of $2,100,000. It will be depreciated using MACRS, and has a seven-year MACRS life classification. Fixed costs will be $360,000 per year. Miglietti Restaurants has a tax rate of 40%. What is the operating cash flow for this project over these ten years? Find the NPV of the project for Miglietti Restaurants if the manufacturing equipment can be sold for $140,000 at the end of the ten-year project and the cost of capital for this project is 8%. MACRS Fixed Annual Expense Percentages by Recovery Class Year 3-Year…
Peaceful Cruises wants to build a new cruise ship that has an initial investment of $400 million. It is estimated to provide an annual cash flow over the next 10 years of $57 million per year. The discount rate is 5%. What is the discounted payback period? Enter your answer rounded to two decimal places
5
A firm is considering a new inventory system that will cost $120,000. The system is expected to generate positive cash flows over the next four years in the amounts of $35,000 in year 1, $55,000 in year 2, $65,000 in year 3, and $40,000 in year 4. The firm’s required rate of return is 9%. What is the payback period of this project? 1.95 years 2.46 years 2.99 years 3.10 years Based on the information from Question 47. What is the net present value (NPV) of the project? $28,830.29 $30,929.26 $36,931.43 $39,905.28 Based on the information from Question 47, what is the internal rate of return (IRR) of this project? 14.03% 17.56% 19.26% 21.78% Based on the information from Question 47, what is the profitability index (PI) of this project? 0.87 1.11 1.31 1.83.
The present value of an investment is estimated at about $266, 300. The expected generated free cash flow from the project for next year is $5, 000 and is expected to grow 15% a year for the next four years following the first generated cash flow. After the fifth year (t = 5), the growth rate is expected to be 6% in perpetuity. Estimate the discount rate used in valuing this project
NPV. Miglietti Restaurants is looking at a project with the following forecasted sales: first-year sales quantity of 34,000 , with an annual growth rate of 4.00% over the next ten years. The sales price per unit will start at $45.00 and will grow at 2.00% per year. The production costs are expected to be 55% of the current year's sales price. The manufacturing equipment to aid this project will have a total cost (including installation) of $2,400,000. It will be depreciated using MACRS, 囲, and has a seven-year MACRS life classification. Fixed costs will be $360,000 per year. Miglietti Restaurants has a tax rate of 359 /hat is the operating cash flow for this project over these ten years? Find the NPV of the project for Miglietti Restaurants if the manufacturing equipment can be sold for $140,000 at the end of the ten-year project and the cost of capital for this project is 7%. What is the operating cash flow for this project in year 1 ? (Round to the nearest dollar.) Data table MACRS…
I am opening a new factory. The factory will cost $10 million up front. I expect a cash flow of $6 million next year. The cash flows will grow at a rate of 1% indefinitely. There are 2 million shares. What is the NPV if the cost of capital is 6%? The current stock price is $50. What is the impact of this project on the stock price?
A capital investment has an initial cost of $566,000. At the end of each of the next 9 years, it is expected to produce cash inflows of $143,000 and cash outflows of $53,000. After 9 years, it is expected to have a residual value of $17,000. Using a discount rate of 7%, what is this investment's net present value?.

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