The estimated beta (/3) of a firm is 1.7. The market return (rm) is 14 %, and the risk-free rate (r1) is 7%. Estimate the cost of equity (ie).
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The estimated beta (/3) of a firm is 1.7. The market return (rm) is 14 %, and the risk-free rate (r1) is 7%. Estimate the
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- A company produces and sells luxury goods and is able to control the demand for the product by varying the selling price. The relationship between price and demand is found to be: p=10-(42/D^2)+2Dwhere p is the price per unit in million dollars and D is the demand per year. The company is seeking to maximize its profit. The fixed cost is $59 million per year and the variable cost is $25 million per unit. The production capacity is 42 units per year, and the company produces at least 1 unit per month. 1) What is the company’s range of profitable output per year?A company produces and sells luxury goods and is able to control the demand for the product by varying the selling price. The relationship between price and demand is found to be: p=10-(42/D^2)+2Dwhere p is the price per unit in million dollars and D is the demand per year. The company is seeking to maximize its profit. The fixed cost is $59 million per year and the variable cost is $25 million per unit. The production capacity is 42 units per year, and the company produces at least 1 unit per month.a) Derive how to find the number of units that should be produced annually to maximize profit.b) What is the maximum profit per year?c) What is the annual breakeven point?d)What is the company’s range of profitable output per year?The University Eye Institute in upper New-York state is a state-of-the-art ophthalmology center that specializes in a sophisticated laser surgery to correct myopia. Current annual volume is 1000 operations. A major customer of the center is the United Health Insurance system. United currently sends the University Eye Institute 200 patients per year or 20% of the total. United pays $2,500 per operation as does every payor. The United Health Insurance Company is satisfied with the quality and service provided by the University Eye Institute and has proposed that they send the Center an additional 100 patients (operations) per year. United proposes that the fee be reduced to $2,000 for the additional 100 patients and for the prior 200 patients. Assume the fee paid by payors other than United Health remains the same. a) What is the marginal revenue per patient if the proposal is accepted? b) What is the marginal cost per patient if the proposal is accepted? Here are some cost data to…
- Eastman Publishing Company is considering publishing a paperback textbook on spreadsheet applications for business. The fixed cost of manuscript preparation, textbook design,and production setup is estimated to be $160,000. Variable production and material costsare estimated to be $6 per book. The publisher plans to sell the text to college and universitybookstores for $46 each.1. What is the breakeven point? 2. What profit or loss can be anticipated with a demand of 3800 copies? 3. With a demand of 3800 copies, what is the minimum price per copy that the publisher must charge to break even? 4. If the publisher believes that the price per copy could be increased to $50.95 and not affect the anticipated demand of 3800 copies, what action would you recommend?What profit or loss can be anticipated?The internal rate of return (IRR) refers to the compound annual rate of return that a project generates based on its up-front cost and subsequent cash flows. Consider this case: Blue Llama Mining Company is evaluating a proposed capital budgeting project (project Delta) that will require an initial investment of $1,500,000. Blue Llama Mining Company has been basing capital budgeting decisions on a project's NPV; however, its new CFO wants to start using the IRR method for capital budgeting decisions. The CFO says that the IRR is a better method because percentages and returns are easier to understand and to compare to required returns. Blue Llama Mining Company's WACC is 9%, and project Delta has the same risk as the firm's average project. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $325,000 Year 2 $450,000 Year 3 $400,000 Year 4 $475,000US Airways owns a piece of land near the Pittsburgh International Airport. The land originally cost USAirways $375,000. The airline is considering building a new training center on this land. US Airwaysdetermined that the proposal the new facility is acceptable if the original cost of the land is used in theanalysis, but the proposal does not meet the airline’s project acceptance criteria if the land cost is above$850,000. A developer recently offered US Airways $2.5 million for the land.Explain fully if US Airways should build the training facility at this location or not.
- PNG’s managers estimate that a 50% increase in price would cause an 80% reduction in the quantity of product sold. Total fixed costs for the product are $5000 and total variable costs are $4000, based on production of 400 units. The following values may be useful. 1n (0.2) = –1.609 1n (1.5) = 0.405 1n (0.5) = –0.693 1n (4000) = 8.294 1n (0.8) = –0.223 1n (5000) = 8.517 What is PNG’s price elasticity of demand? –0.252 +0.322 –3.973 +3.108The preferred stock of McKinney lines , inc, pays an annual dividend of $6.45 and sells for$75.70 a share what is the rate of return on this sicurity?Identify the special cash flow category for each of the following. While developing a new product line, Cook Company spent $3 million two years ago to build a plant for a new product. Ultimately that project was not pursued. You are now evaluating a new project and would locate production inside of this building. What type of cash flow is the cost of the building? You hope to increase membership at your yoga studio by opening a smoothie bar inside of the yoga studio. When considering the feasibility of the smoothie bar, what type of cash flow is the increased studio membership? Suppose Walker Publishing Company is considering bringing out a new finance text whose projected revenues include some revenues that will be taken away from another of Walker's books. What type of cash flow are the lost sales on the older book? You currently operate a taco truck but are considering converting the food truck into a bubble tea truck. What type of cash flow are the profits currently earned…
- The bookstore at Tech purchases jackets emblazoned with the school name and logo from a vendor. The vendor sells the jackets to the store for $38 apiece. The cost to the bookstore for placing an order is $120, and the annual carrying cost is 25% of the cost of a jacket. The bookstore manager estimates that 1700 jackets will be sold during the year. The vendor has offered the bookstore the following volume discount schedule: Order Size 1–299 Discount 0% 300–499 2% 500–799 4% 800+ 5%Cyber Novelties is a direct sells company that sells small gadgets over the Internet. The marketing research staff at Cleveland-based Cyber Novelties has developed the following annual sales estimate: Proposed Selling Price Sales Estimate (Units) $8 55,000 $10 22,000 $15 14,000 $20 5,000 $24 2,800 The demand is insensitive below $8. The new product has an annual fixed cost of $60,000 and a variable cost of $7 per unit. 1. Referring to Cyber Novelties above. calculate the elasticity between $10 and $15 2. What is the breakeven quantity at a price of $10? 3. Referring to Cyber Novelties above, which of the proposed selling prices would generate the largest profit? 4. After conducting additional marketing research. Cyber Novelties estimates that by increasing the spending $75.000 annually for advertising and $0.05 per-unit allocation for extra promotion on the web will produce the following increases in estimated sales: 143,000 units at an $8 unit selling price, 48,000…A company participating in a market of perfect competition invoices monthly 154,200 units, the sum of $308,400,000, so P = $2,000 With this level of sales, the company has saturated its production capacity and as a result its costs have risen sharply. Its marginal cost (MC) is MC = (q2 / 2,000,000) - (q / 20) + 2,450. It is determined that its fixed costs (FC) amount to $20,500,000. You want to know: (a) whether the company should increase or decrease its production and by how much. b) what would be the optimal level of production (q*)? c) what is the profit at the optimal level of production? d) what is the company's current profit?