Rocky Mountain Drilling Inc has a new shale oil field under development
The firm estimates free cash flows to the firm (FCFF) of $2,000,000 at the end of one year and increases of 20% per year for each of the next two years, and then year-end fcff of $3,000,000 per year for five years before exhausting the oil in the field. If the firm has a WACC of 12.5%, what is the value today of these expected cash flows?
A) $8,485,936
B) $10, 817,300
C) $13,198,893
D) $20,280,000
C
Explanation: C) Using Excel, PV of 200000, 2400000, 2880000, 3000000, 3000000, 3000000, 3000000, 3000000, at a rate of 12.5%.
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Blair Stationery Company is a price-taker and uses target pricing
The company has just done an analysis of its revenues, costs, and desired profits and has calculated its target full product cost. Assume all products produced are sold. Refer to the following information: Target full product cost $510,000 per year Actual fixed cost $260,000 per year Actual variable cost $3 per unit Production volume 152,000 units per year Actual costs are currently higher than target full product cost. Assuming that fixed costs cannot be reduced, what are the target total variable costs? A) $260,000 B) $456,000 C) $250,000 D) $510,000
When a firm pays a stated dollar dividend and adjusts the payment as earnings increase, its dividend policy can be called ________
A) a low-regular-and-extra dividend policy B) a regular dividend policy C) a target dividend-payout ratio policy D) a constant-payout-ratio dividend policy
An instruction to a securities agent to purchase a stock as long as its price does not exceed a specified level is a ________
A) short sell B) market order C) limit order D) stop loss order
The zero curve is downward sloping. Define X as the 1-year par yield, Y as the 1-year zero rate and Z as the forward rate for the period between 1 and 1.5 year. Which of the following is true?
A. X is less than Y which is less than Z B. Y is less than X which is less than Z C. X is less than Z which is less than Y D. Z is less than Y which is less than X