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A firm is considering an investment in a new machine with a price of $18.07 million to replace its existing machine. The current machine has a book value of $6.07 million and a market value of $4.57 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 $6.77 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 $257,000 in net working capital. The required return on the investment is 10 percent, and the tax rate is 40 percent. Assume the company uses straight-line depreciation. What is the NPV of the decision to purchase a new machine? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) NPV $ What is the IRR of the decision to purchase a new machine? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) IRR % What is the NPV of the decision to keep the old machine? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. A negative answer should be indicated by a minus sign.) NPV $ What is the IRR of the decision to keep the old machine? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. A negative answer should be indicated by a minus sign.) IRR %
If you’re average daily balance on your credit card in June is $1,200 and your APR is 18%, how much interest do you pay the next billing cycle? If you also incurred a $29 late charge, what is now your effective interest rate?
You would like to invest some spare cash for six months in a U.S. Treasury bill. The current interest rate on six-month bills is 1% compounded semi-annually, and each bill promises to repay $10,000 in exactly six months. What is the current price for..
You are the borrower in an FRA where you will pay 5% (annual compounding) for the third year on $1 million. Write down the calculate process. The current forward interest rate for the third year is 5.1% (annual compounding). The 3-year zero rate is 4..
What is the beta of Stock A given the following returns of the market and Stock A in two states of the economy? Market Return (%), State of the Economy, Normal 15%, Recession 5%. Stock A Return (%), State of Economy, Normal 20%, and Recession 6%.
At what rate is the top surface of the water rising when its height above the bottom of the bowl is 3 feet? 4 feet? 5 feet?
A financial planning service offers a college savings program. The plan calls for you to make six annual payments of $16,500 each, with the first payment occurring today, your child’s 12th birthday. Beginning on your child’s 18th birthday, the plan w..
Covered Interest Arbitrage. Assume the following information: Quoted Price Spot rate of Canadian dollar $.80 90-day forward rate of Canadian dollar $.79 90-day Canadian interest rate 4% 90-day U.S. interest rate 2.5% 1- Given this information, what w..
i) Define in one sentence, how would you recognise a Strategic Knowledge Management (SKM) story within the press or media? ii) What 5 features or dimensions must be considered to identify an SKM story?
Bravo company is considering a plan to construct a new manufacturing plant to expand its operations. An attractive piece of land is available which could be purchased immediatley for $100,000. Bravo would build a plant on the land at a cost of $200,0..
Mary Spinks currently has $5,750 in a money market account paying 4.37 percent compounded semi-annually. She plans to use this amount and her savings over the next 5 years to make a down payment on a townhouse. She estimates that he will need $15,000..
Discuss precisely the key difference between systematic risk and unsystematic risk. Recently, Pfizer terminated its merger proposal with Allergan. State the nature of the risk associated with Pfizer’s decision and explain precisely why risk averse in..
X-treme Vitamin Company is considering two investments, both of which cost $10,000. Which of the two projects should be chosen based on the net present value method? Which of the two projects should be chosen based on the payback method?
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