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The Boyd Bottling Company is contemplating the replacement of one of its bottling machines with a newer and more efficient one. The old machine has a book value of $600,000 and a remaining useful life of five years. The firm does not expect to realize any return from scrapping the old machine in five years, but it can be sold today to another firm in the industry for $265,000. The old machine is being depreciated toward a zero salvage value, or by $120,000 per year, using the straight line method. The new machine has a purchase price of $1,175,000, an estimated useful life and MACRS class life of five years, and an estimated market value of $145,000 at the end of five years. ( MACRS recovery 20%,32%,19%,12%,11% .) The machine is expected to economize on electric power usage, labor, and repair costs, which will save Boyd $230,000 each year. In addition, the new machine is expected to reduce the number of defective bottles, which will save an additional $25,000 annually. The company’s marginal tax rate is 40 percent and it has a 12 percent required rate of return. Should the firm purchase the new machine? Support your answer.
Analyzing Transactions Using Financial Statement Effect Template (LO3) Sefcik Company began operations on the first of October. Following are the transactions for its first month of business. S. Sefcik launched Sefcik Company and invested $50,000 int..
1) Suppose you deposit $ 2,000 today and your account will acuumulate to $ 4,000 in 10 years. What is the nominal annual rate of interest, given semiannual compounding?
You’re trying to determine whether or not to expand your business by building a new manufacturing plant. The plant has an installation cost of $17.4 million, which will be depreciated straight-line to zero over its four-year life. If the plant has pr..
You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $50,000. The truck falls into the MACRS 3-year class, and it will be sold after three years for $20,400. Use of the truck wil..
Calculate a value in response to the following: Believing that an estimated increase in sales is overly optimistic, a company director is requesting data predicting annual profit if the selling price calculated above is adopted but the change in s..
Lohn Corporation is expected to pay the following dividends over the next four years: $17, $13, $12, and $7.50. Afterward, the company pledges to maintain a constant 5 percent growth rate in dividends forever. If the required return on the stock is 1..
A few years ago Spider Web INC issued bonds with a 8.23 percent annual coupon rate paid semi annually. The bonds have a par value of $1000 a current price of $1092 and will mature in 20 years. What would the annual yield to maturity be on the bond if..
Suppose a firm finds itself as the target of a possible hostile takeover. An outsider investor has acquired a major stake of shares and is threatening to exert influence on the board.
Assume that you are the hedge fund portfolio manager and are starting a new fund. You have received $1 million to invest in a portfolio of derivatives. You should invest at least 20% in each of options, futures, and derivatives. what is the potential..
Protron Inc. is currently an all-equity firm that currently has $200 million in assets. On average, the return on its physical assets (ROA) every year is 17.5 percent. That is, on average, EBIT is 17.5 percent of the value of the assets. What is the ..
Calculate the ratios for the company selected in Milestone One and show your calculations for each indicator in an appendix.
Annuity Values Betty's Bank offers you a $7,000, six-year term loan at 10 percent annual interest. What will your annual loan payment be?
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