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Pilot Plus Pens is deciding when to replace its old machine. The machines current salvage value is $2.26 million. Its current book value is $1.46 million. If not sold, the old machine will require maintenance costs of $851,000 at the end of the year for the next five years. Depreciation on the old machine is $292,000 per year. At the end of five years, it will have a salvage value of $126,000 and a book value of $0. A replacement machine costs $4.36 million now and requires maintenance costs of $336,000 at the end of each year during its economic life of five years. At the end of the five years, the new machine will have a salvage value of $806,000. It will be fully depreciated by the straight-line method. In five years a replacement machine will cost $3,260,000. Pilot will need to purchase this machine regardless of what choice it makes today. The corporate tax rate is 40 percent and the appropriate discount rate is 7 percent. The company is assumed to earn sufficient revenues to generate tax shields from depreciation.
Calculate the NPV for new and old machines.
The board of directors is dissatisfied with lasy year's ROE of 15%. if the profit margin and total asset turnover remain unchanged at 8% and 1.25 respectively, by how much must he total debt ratio (D/A) increase to achieve a 20% ROE?
A 20-year Treasury bond is issued with face value of $1,000, paying interest of $40 per year. If market yields increase shortly after the T-bond is issued, what is the bond’s coupon rate? (Round your answer to 1 decimal place.)
Newman Manufacturing is considering a cash purchase of stock of Grips Tool. During the year completed, Grips earned $4.25 per share and paid cash dividends of $2.55 per share (D0=$2.55). Grips' earnings and dividends are expected to grow at 25% per y..
BREAK-EVEN ANALYSIS Perform a break-even analysis for the following scenario. Assume you sell widgets. You have total fixed costs of $12,000. Your manufacturing and shipping of widgets costs $7 per widget. You sell each widget for $22. What is your b..
Assume that interest rates for one-year securities are expected to be 2 percent today, 4 percent one year from now and 6 percent two years from now. Using only the pure expectations theory, what are the current interest rates on two-year and three-ye..
BSW Corporation has a bond issue outstanding with an annual coupon rate of 8 percent paid quarterly and four years remaining until maturity. The par value of the bond is $1,000. Determine the fair present value of the bond if market conditions justif..
Explain, in your own words, when and how the composition of capital (the mix of debt and equity) does not affect the value of the firm and Discuss this statement: leverage gives the illusion of higher returns.
Changes in sales cause changes in profits. Would the profit change associated with sales changes be larger or smaller if a firm increased its operating leverage? Explain your answer.
Ghost Rider Corporation has bonds on the market with 16 years to maturity, a YTM of 7 percent, and a current price of $968. What must the coupon rate be on the company’s bonds?
Collecting and using personal data: consumers' awareness and concerns
AllCity Inc is financed 40% with debt, 10% with preferred stock, and 50% with common stock. Its pretax cost of debt is 6%. Its preferred stock pays an annual dividend of $2.50 and is priced at $30. It has an equity beta of 1.1. Assume the risk-free r..
A firm has 120,000 shares of stock outstanding, a sustainable rate of growth of 3.8, and $648,200 in free cash flows. What value would you place on a share of this firm's stock if you require a 14% rate of return?
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