Suite Enterprises is a large restaurant supply firm that dominates the local market. It does, however, have one main rival; Loew Supplies. Because of this competition, Suite earns a profit of $1384 per year. It could however, cut its prices to cost, earn zero profits for 2 years and drive Loew outof the market. If it does so, Suite will start earning $1523 in 2 years to o. The interest rate is 12 % per annum.What is the present value of Suite's profit stream if it does not cut its pricesWhat is the present value of Suite's profit stream if it does cut its pricesDoes it pay Suite to cut its profitsOnoOyes

Annual profit = $ 1384 Annual interest rate = 12% As per formula Present value =…

Answered: Suite Enterprises is a large restaurant…

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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Your company received a $9 million order on the last day of the year. You filled the order with $3 million worth of inventory. The customer picks up the order the same day and pays $3 million up front in cash; you also issue a bill for the customer to pay the remaining balance of $6 million within 40 days. Suppose your firm’s tax rate is 0% (ignore taxes). Based on the above information; a. No option is correct b. Your earnings did not change c. Your earnings went up by $9 million d. Your earnings went up by $6 million
You are planning to manufacture a new cordless induction food processor. As this is new technology, it will cost you $4 million to develop and you plan to manufacture for three years (3Y straight line depreciation). Due to the rapidly changing nature of induction technology you do not wish to plan any more than three years ahead. Competition is fierce and you have estimated your annual expenses and sales etc as per the following with estimates for changes in good or bad scenarios. a. Market size b. Market share Unit Price 70,000 ± 7% 0.30 ± 10% $500 ± 5% c. d. Variable c.p.u. 28% e. Fixed costs f. Taxes Your cost of capital is 6%. $270 ± 12% $400,000 ± 13% Create a table of estimated and pessimistic values for each element. What is the three-year NPV of the project with all values pessimistic? Do you think that this should go ahead and why?
CoffeeStop primarily sells coffee. It recently introduced a premium coffee-flavored liquor (BF Liquors). Suppose the firm faces a tax rate of 25% and collects the following information. If it plans to finance 10% of the new liquor-focused division with debt and the rest with equity, what WACC should it use for its liquor division? Assume a cost of debt of 5.1%, a risk-free rate of 3.3%, and a market risk premium of 6.3%. % Equity % Debt 96% 4% CoffeeStop BF Liquors 90% 10% Note: Assume that the firm will always be able to utilize its full interest tax shield. Beta 0.62 0.25 The weighted average cost of capital is %. (Round to two decimal places.)
am. 336.
During computation, you may round your integer data to two decimal places and your percentages and present value factors to four decimal places.
1. Assume that $1,000 is to be received 30 years from today. Compare the present values obtained using 0.05 and 0.20 as rates of discount. 2. The ABC Company has opened 10 new stores. It has incurred a great deal of expenses associated with opening the stores, and the stores have not yet built up enough clientele to be profitable. On the other hand, the stores are operating at profit levels exceeding expectations, and there are indications that they will be very profitable in the future. It is obvious that the stock market has not yet digested this latter fact, and the additional 50 stores this year, but to do so will require new stockholder capital acquired from the market (it has borrowed all it feels it is prudent to borrow and cannot obtain more capital from its current stockholders). Without the new capital, the stockholders can expect to earn an equivalent annual return of 0.15 on the current market value of their investment (assume there is $100 million or 1 million shares of…
Two competitors with very similar offerings currently have 20% and 15% market share respectively. The total market is of about 1,000,000 units per year. Currently, both competitors charge in average $10 per unit. The competitor with the lower market share decides to conquer more of the market and drops the price to $8, with the intent to capture 18% of the market. Is this wise? What is the long term impact on revenue for both companies, given that due to the similarity of their products, it is likely that any gain in market share will be coming from the other close competitor?
Use the following information for all questions. McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $700 per set and have a variable cost of $340 per set. The company has spent $150,000 for a marketing study that determined the company will sell 46,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 12,000 sets of its high-priced clubs. The high-priced clubs sell at $1,100 and have variable costs of $550. The company will also increase sales of its cheap clubs by 20,000 sets. The cheap clubs sell for $300 and have variable costs of $100 per set. The fixed costs each year will be $8,000,000. The company also spent $1,000,000 on research and development for the new clubs. The plant and equipment required will cost $16,100,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $900,000 that will be returned at the end of the project.…
Ee 276.
Steinberg Corporation and Dietrich Corporation are identical firms except that Dietrich is more levered. Both companies will remain in business for one more year. The companies' economists agree that the probability of the continuation of the current expansion is 70 percent for the next year and the probability of a recession is 30 percent. If the expansion continues, each firm will generate earnings before interest and taxes (EBIT) of $3 million. If a recession occurs, each firm will generate earnings before interest and taxes (EBIT) of $1.4 million. Steinberg's debt obligation requires the firm to pay $930,000 at the end of the year. Dietrich's debt obligation requires the firm to pay $1.5 million at the end of the year. Neither firm pays taxes. Assume a discount rate of 12 percent. a-1. What is the value today of Steinberg's debt and equity? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g.,…
Nikulbhai
2. Company XYZ sells CDs. The price of its new CD is $15. Fixed costs are $1,500,000 per year. Variable costs are $9. The company expects to sell 300,000 units this year. a. How many DVDS will the company need to sell to break even? b. If the forecasts are correct, how much will company XYZ make or lose this year (before taxes)?

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