Thunder Bay Entertainment Inc. has two separate divisions: DVD rental and sporting goods. The beta of the entire company is 1.25. The beta of the DVD rentals division is 0.8 and the beta of the sporting goods division is 1.5. The risk-free rate is 4% and the market risk premium is 7.5%. Which of the following independent projects should the company undertake? Project || ||| IV Industry Sporting goods Sporting goods DVD rental DVD rental CFO $150,000 $200,000 $50,000 $80,000 Perpetual annual CF $25,000 $30,000 $6,000 $7,500

Thunder Bay Entertainment Inc. has two separate divisions: DVD rental and sporting goods. The beta of the entire company is 1.25. The beta of the DVD rentals division is 0.8 and the beta of the sporting goods division is 1.5. The risk-free rate is 4% and the market risk premium is 7.5%. Which of the following independent projects should the company undertake? Project || ||| IV Industry Sporting goods Sporting goods DVD rental DVD rental CFO $150,000 $200,000 $50,000 $80,000 Perpetual annual CF $25,000 $30,000 $6,000 $7,500

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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Raghubhai
2. Find All four present values
An interior design studio is trying to choose between the following two mutually exclusive design projects: Year 0 1 2 3 Cash Flow Cash Flow (0) -$64,000 31,000 31,000 31,000 a-1 If the required return is 10 percent, what is the profitability index for both projects? (Round your answers to 3 decimal places. (e.g., 32.161)) Project I Project II -$18,000 9,700 9,700 9,700 Profitability Index a-2 If the company applies the profitability index decision rule, which project should the firm accept? O Project I O Project II Project I Project II b-1 What is the NPV for both projects? (Round your answers to 2 decimal places. (e.g., 32.16)) O Project I Project II NPV b-2lf the company applies the NPV decision rule, which project should it take?
Sh2
Identify two types of such a company and explain why. QUESTION TWO Total [12 marks] Finozest Solutions is considering setting up a facility to manufacture computers. The manufacturing facility will cost K15 million to build and will have the capacity to sell 50,000 computers a year. Each computer is expected to sell retail for K2,800, and the cost of making each computer is expected to be K1,400. The fixed costs amount to K150,000 per year are expected to be incurred. The business will run for five years, at which time you estimate the market value of the facility to be zero. The discount rate is estimated at 10%, and the tax rate is 40%. [5 marks] (b) Using the net present value technique for project evaluation, advise Finozest solutions on whether they should undertake this project. (a) Estimate the accounting rate of return expected from his investment. [10 marks] (c) After the release of the latest GDP projections for the country, you now estimate that at the end of 5 years, you…
please provide step by step explaination
13. The replacement chain approach - Evaluating projects with unequal lives Aa Aa Evaluating projects with unequal lives Your company is considering starting a new project in either France or Mexico-these projects are mutually exclusive, so your boss has asked you to analyze the projects and then tell her which project will create more value for the company's stockholders. The French project is a six-year project that is The Mexican project is only a three-year project; however, your expected to produce the following cash flows: company plans to repeat the project after three years. The Mexican project is expected to produce the following cash flows: Project: French Year 0: -$650,000 Project: Mexican Year 1: $220,000 Year 0: -$475,000 Year 2: $240,000 Year 1: $225,000 Year 3: $245,000 Year 2: $235,000 Year 4: $270,000 Year 3: $255,000 Year 5: $120,000 Year 6: $100,000 Because the projects have unequal lives, you have decided to use the replacement chain approach to evaluate them. You…

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