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A company is considering buying a machine that would give a net cost savings of $70,000 per year for 10 years. The cost of the machine is $325,000. The company's weighted average cost of capital is 12%.
What is the difference in the payback and discounted payback of the machine?
A stock has a total return of 16.4%, a standard deviation of 14.5% and a beta of 1.63. The market rate of return is 12.4%, while the market's Treynor measure is 6.3. What is the value of the Treynor measure of this portfolio?
Assume a project has an initial cost of $51,300 and is expected to provide cash flows of $18,200, $37,300, and $14,300 for years 1 to 3, respectively. What is the profitability index given a required return of 12.5 percent?
Assume you sell a European call option on AUD100,000 (AUD = Australian Dollar). The strike price is X(USD/AUD)=0.72 (USD = U.S. Dollar), the maturity is one year, and the premium is 5 cents per AUD. Find the maximum loss and the break-even point S(US..
In each of the following financial situations, fill in the blank with the terms high duration, low duration, or zero duration, as appropriate. a. If you were considering buying a bond and you expected interest rates to increase, you would prefer a bo..
The Heuser Company's currently outstanding bonds have a 10% coupon and a 12% yield to maturity. Hueser believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 35%, what is Heuser's after-ta..
Muncy, Inc., is looking to add a new machine at a cost of $4,133,250. The company expects this equipment will lead to cash flows of $817,322, $863,275, $937,250, $1,019,610, $1,212,960, and $1,225,000 over the next six years. An investment of $83 gen..
You have the following rates of return for a risky portfolio for several recent years. Assume that the stock pays no dividends. Year Beginning of Year Price # of Shares Bought or Sold 2008 $95 240bought 2009 $100 190bought 2010 $96 215sold 2011 $99 2..
Your firm has an average receipt size of $145. A bank has approached you concerning a lockbox service that will decrease your total collection time by one day. You typically receive 7,100 checks per day. The daily interest rate is 0.017 percent. What..
A manager believes his firm will earn a 11.50 percent return next year. His firm has a beta of 1.40, the expected return on the market is 9.0 percent, and the risk-free rate is 4.0 percent. Compute the return the firm should earn given its level of r..
If two mutually exclusive projects were being compared, would a high cost of capital favor the longer-term or the shorter-term project? Why? If the cost of capital declined, would that lead firms to invest more in longer-term projects or shorter-term..
Discuss the concepts of marginal product and marginal cost. Also discuss the importance of trends in these and other economic measures and how time-series analysis (trend analysis) can be used or misused to make important management decisions.
Independent of item 4, your company needs to raise capital to build an addition. The addition is 5% of your current total assets. What debt/equity mix is the best mix and why? how long will it take for the project to be accepted?
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