Farmer Co. is considering Projects S and L, whose cash flows are shown below.
These projects are mutually exclusive, equally risky, and not
If the decision is made by choosing the project with the shorter payback, some value may be forgone.
How much value will be lost
in this instance?
Note that under some conditions choosing projects on the basis of the shorter payback will not cause value to be lost. WACC:
Firm J's earnings and stock price tend to move up and down with other firms in the S&P 500, while Firm F's earnings and stock price move
counter cyclically with J and other S&P companies.
Both J and F estimate their costs of equity using the CAPM, they have identical market
values, their standard deviations of returns are identical, and they both finance only with common equity.
Which of the following statements is
Fitzgerald Computers is considering a new project whose data are shown below.
The required equipment has a 3-year tax life, after which it
will be worthless, and it will be depreciated by the straight-line method over 3 years.
Revenues and other operating costs are expected to be
constant over the project’s 3-year life.
Garden-Grow Products is considering a new investment whose data are shown below.
The equipment would be depreciated on a straight-line
basis over the project’s 3-year life, would have a zero salvage value, and would require some additional working capital that would be recovered
at the end of the project’s life.
Revenues and other operating costs are expected to be constant over the project’s life.
What is the project’s NPV?
Garner Inc. is considering a project that has the following cash flow data.
Getler Inc.’s projected capital budget is $2,000,000, its target capital structure is 40% debt and 60% equity, and its forecasted net income is
If the company follows a residual dividend policy, how much dividends will it pay or, alternatively, how much new stock must it