Tutorial 5

Tutorial 5 - Tutorial Problems-V Question-1 Presto has an...

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1 of 2 Tutorial Problems-V Question-1 Presto has an equity beta of 2.0 and a target debt to value ratio of 28%. Presto is considering investing in a new line of Italian pre-cooked food. Launching this new line would require today (i.e., year 2010) an investment of $15 million in CAPX, and of $5 million in inventory. In the table below you will find the investment’s projections for the next 3 years (i.e., 20011-2013). After the year 2013, the firm’s cash-flows will continue growing at 2% indefinitely. Year 2010 2011 2012 2013 Sales $15,000 $15,000 $18,000 Manufacturing Costs $3,000 $4,000 $5,000 Marketing Costs $1,000 $0 $0 Depreciation $1,500 $1,600 $1,500 Inventory $5,000 $5,200 $5,400 $5,600 A/R $1,000 $1,200 $1,200 CAPX $15,000 $2,500 $600 $2,500 All data is in thousands of dollars and in year-end values Currently, the government interest rate is 3% and the marginal tax rate is 40%. Below you will find historical information on annual holding-period securities returns
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Tutorial 5 - Tutorial Problems-V Question-1 Presto has an...

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