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Montilus Products Inc. is considering the purchase of a new machine, which will reduce manufacturing costs by $15,000 annually. Montilus will use the MACRS accelerated method to depreciate the machine (5-year MACRS class life), and it expects to sell the machine at the end of its 6-year operating life for $10,000. The firm expects to be able to reduce net operating working capital by $12,000 when the machine is installed, but required working capital will return to the original level when the machine is sold after 6 years. Montilus's marginal tax rate is 40 percent and it uses a discount rate of 12 percent to evaluate projects of this nature. If the machine costs $50,000 what is the project's NPV and IRR?
You have two options of paying for your new dishwasher, you can either make a single payment of $400 today, or you can pay $70 for the next 6 months, with the first payment made today. what is the effective annual interest rate (EAIR) of the second o..
The financial press reports the USD/NGN exchange rate at 194.0521 and the USD/NZD exchange rate at 1.5043. What is the cross rate between the New Zealand dollar and the Nigerian naira?
MVP, Inc., has produced rodeo supplies for over 20 years. The company currently has a debt–equity ratio of 50 percent and is in the 40 percent tax bracket. The required return on the firm’s levered equity is 14 percent. The company would also make y..
A 5-year corporate bond has an 8 percent yield. A 10-year corporate bond has a 9 percent yield. The two bonds have the same default risk premium and liquidity premium. The real risk-free rate, r*, is expected to remain constant at 3 percent. Inflatio..
Even a rough NPV can be a great way to weed though a group of projects to find the top picks that need further analysis. Most department managers can understand a simple "will it make money or not" and NPV can be an excellent way to help non-financia..
The capital asset pricing model approach to equity valuation: You are preparing to make monthly payments of $75, beginning at the end of this month, into an account that pays 6 percent interest compounded monthly. How many payments will you have made..
In light of the securities fraud committed by Bernard Madoff and others, write an essay of one to two pages indicating what the SEC could have or should have done to prevent this type of fraud. In your essay indicate whether the failure of the SEC to..
Farmland Inc. produces 80,000 units of product A at a total cost of $2.4 million. Total fixed costs are $1 million. If the company increases production by 25% and uses a 40% markup the price per unit will be:
Duke Power has a 10 year, 5.5% coupon bond that is currently selling for $1,033.15. Assume that coupon payments are semi-annual. What is the yield-to-maturity of this bond?
Suppose the state of California approved the use of local option income taxes (personal and corporate). You work in the finance department of a county government and the country is considering adopting the income tax.
Find the interest rates earned on each of the following. You borrow $720 and promise to pay back $792 at the end of 1 year. You borrow $65,000 and promise to pay back $98,319 at the end of 14 years.
Garcia company issues 10%, 15-year bonds with a par value of $240,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 14%, which implies a selleing price of 75%. What are the issuers cash proceeds from i..
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