## ART has Come Out with a New and Improved Product

Answer for ART has Come Out with a New and Improved Product for \$2 Only

ART has come out with a new and improved product. As a result, the firm projects an ROE of 27%, and it will maintain a plowback ratio of 0.30. Its earnings this year will be \$4.0 per share. Investors expect a 16% rate of return on the stock. What price do you expect ART shares to sell for in 4 years?

a) \$44.77

b) \$83.15

c) \$48.40

d) \$52.40

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## Question on Zero Coupon Bond

A \$1,000, 30 year zero coupon bond sells for \$100. What is the effect on the rate of return if the selling price of the bond increases by 10 percent?
A increase of 34%
B decrease of 34%
C increase of 3.33%
D decrease of 10%

Can someone explain and show me the math to this problem?

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## Bucholz Brands Net Present Value (NPV) Estimation

Bucholz Brands Net Present Value (NPV) Estimation
Bucholz Brands is considering the development of a new ketchup product. The ketchup will be sold in a variety of different colors and will be marketed to young children. In evaluating the proposed project, the company has collected the following information:
• The company estimates that the project will last for four years.
• The company will need to purchase new machinery that has an up-front cost of \$300 million (incurred at t = 0). At t = 4, the machinery has an estimated salvage value of \$50 million.
• The machinery will be depreciated on a 4-year straight-line basis.
• Production on the new ketchup product will take place in a recently vacated facility that the company owns. The facility is empty and Bucholz does not intend to lease the facility.
• •The project will require a \$60 million increase in inventory at t = 0. The company expects that itsaccounts payable will rise by \$10 million at t = 0. After t = 0, there will be no changes in net operating working capital, until t = 4 when the project iscompleted, and the net operating working capital is completely recovered.
• The company estimates that sales of the new ketchup will be \$200 million each of the next four years.
• The operating costs, excluding depreciation, are expected to be \$100 million each year.
• The company’s tax rate is 40 percent.
• The project’s WACC is 10 percent.
What is the project’s estimated net present value (NPV)? Need all the procedure with the answer

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## Weighted Average Cost of Capital (WACC) for Golden Gate construction Associates

Weighted Average Cost of Capital (WACC) for Golden Gate construction Associates

Golden Gate Construction Associates, a real estate developer and building contractor in San Francisco, has two sources of long-term capital: debt

and equity. The cost to Golden Gate of issuing debt is the after-tax cost of the interest payments on the debt, taking into account the fact that the interest payments are tax deductible. The cost of Golden Gate’s equity capital is the investment opportunity rate of Golden Gate’s investors, that is, the rate they could earn on investments of similar risk to that of investing in Golden Gate Construction Associates. The interest rate on Golden Gate’s \$90 million of long-term debt is 10 percent, and the company’s tax rate is 40 percent. The cost of Golden Gate’s equity capital is 15 percent. Moreover, the market value (and book value) of Golden Gate’s equity is \$135 million. Required: Calculate Golden Gate Construction Associates’ weighted-average cost of capital

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## Clark Paints: Calculate Annual cash flows, Payback Period NPV & IRR

Clark Paints: Calculate Annual cash flows, Payback Period NPV & IRR

Clark Paints: The production department has been investigating possible ways to trim total production costs. One possibility currently being examined is to make the paint cans instead of purchasing them. The equipment needed would cost \$200,000, with a disposal value of \$40,000, and it would be able to produce 5,500,000 cans over the life of the machinery. The production department estimates that approximately 1,100,000 cans would be needed for each of the next five years.

The company would hire three new employees. These three individuals would be full-time employees working 2,000 hours per year and earning \$12.00 per hour. They would also receive the same benefits as other production employees, 18% of wages, in addition to \$2,500 of health benefits.

It is estimated that the raw materials will cost 25¢ per can and that other variable costs would be 5¢ per can. Since there is currently unused space in the factory, no additional fixed costs would be incurred if this proposal is accepted.

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