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Calculating NPV and IRR for a Replacement A firm is considering an investment in a new machine with a price of $15.6 million to replace its existing machine. The current machine has a book value of $5.4 million and a market value of $4.1 million. The new machine is expected to have a four-year life, and the old machine has four years left in which it can be used. If the firm replaces the old machine with the new machine, it expects to save $6.3 million in operating costs each year over the next four years. Both machines will have no salvage value in four years. If the firm purchases the new machine, it will also need an investment of $250,000 in net working capital. The required return on the investment is 10 percent, and the tax rate is 39 percent. What are the NPV and IRR of the decision to replace the old machine?
Photo chronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt−equity ratio of 0.80. It’s considering building a new $53 million manufacturing facility. This new plant is expected to generate af..
FDR Industries has 50 million shares of stock outstanding selling at $30 per share and an issue of $200 million in 9.5 percent, annual coupon bonds with a maturity of 10 years, selling at 105 percent of par ($1,000). If FDR's weighted average tax rat..
You have $250,000 invested in bond A which has a modified duration of 3 and $175,000 invested in bond B which has a modified duration of 12. If interest rates rise by 50 basis points, your portfolio would gain/lose approximately how much money?
A total of $60,000 is borrowed and repaid with 60 monthly payments, with the first payment occurring 1 month after receipt of the $60,000. The stated interest rate is 5% compounded monthly. What monthly payment should be made? $
Assume that a bond makes 30 equal annual payments of $1,000 starting one year from today. (This security is sometimes referred to as an amortizing bond.) If the discount rate is 3.5% per annum, what is the current price of the bond?
Camila plans to go for vacation to Australia in 7 years from now. She estimates that she will need $15,668 for the trip. How much does she need to place in a saving account today that earns 4.83 percent per year (compounded quarterly) to accumulate t..
A convertible bond is selling for $900. It has 10 years to maturity, a $1000 face value, and a 10% coupon paid semi-annually. Similar non convertible bonds are priced to yield 12%. The conversion ration is 40. The stock currently sells for $21.75 per..
In January 2007, the average price of an asset was $28,658. 8 years earlier, the average price was $22,508. What was the annual increase in selling price?%. One year ago, you invested $3,100.00. Today, it is worth $3,850.00. What rate of interest did..
Evaluate the role financial intermediaries' play in smoothing out the incompatibilities between savers and borrowers and promoting a well functioning financial system
Williamson, Inc., has a debt-equity ratio of 2.5. The firm’s WACC is 15%, and its pretax cost of debt is 10%. Williamson is subject to a corporate tax rate of 35%. 1) What is Williamson’s cost of equity capital? 2) What is Williamson’s unlevered cost..
What is the relationship between the Internal Rate of Return, Profitability Index, and Net Present Value. Will they lead to the same acceptance or rejection of a decision?
A firm evaluates all of its projects by applying the NPV decision rule. A project under consideration has the following cash flows: Year Cash Flow 0 –$ 27,700 1 11,700 2 14,700 3 10,700 what is the NPV for the project if the required return is 12 per..
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