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Two years ago our company bought equipment for $1 million that has been depreciated straight line over a five-year life. Key points to consider: The equipment has a current market value of $300,000. More efficient equipment can be purchased today for $3 million and is expected to last 5 years (economic life), at which time its anticipated salvage value would be $300,000. However, the new equipment would be depreciated straight line over only four years to a zero salvage value. Our company would realize a $1,000,000 per year operating cost savings by replacing the old equipment with the new equipment. Also, the Net Working Capital Requirement would decrease by $75,000 as soon as the equipment is purchased, but would increase when it is sold at the end of its economic life (5 years). The marginal tax rate is 30%. Required: Identify the relevant cash flows for this project.
A commercial bank will loan you $28,206 for 8 years to buy a car. The loan must be repaid in equal monthly payments at the end of the month. The annual interest rate on the loan is 10.47 percent of the unpaid balance. What is the amount of the monthl..
Exhibit 1.29 presents common-size and percentage change balance sheets and Exhibit 1.30 (page 81) presents common-size and percentage change income statements for Starbucks for2009–2012. Net earnings as a percentage of total revenues increased from 3..
Assume you have just been hired as a financial analyst by Tennessee Sunshine Inc., a mid-sized Tennessee company that specializes in creating exotic sauces from imported fruits and vegetables. Why might stockholders be indifferent to whether or not a..
Pasqually Mineral Water, Inc., will pay a quarterly dividend per share of $1.55 at the end of each of the next 12 quarters. Thereafter, the dividend will grow at a quarterly rate of 1.5 percent, forever. The appropriate rate of return on the stock is..
Suppose the initial margin on heating oil futures is $8,900, the maintenance margin is $8,000 per contract, and you establish a long position of 14 contracts today, where each contract represents 47,000 gallons. Tomorrow, the contract settles down $...
The amount of supervision required when using a chase strategy is typically high compared to the level strategy. The term utilization and efficiency are synonymous in a business application. Sales and Operations planning (S&OP) uses the master produc..
Explain the assumptions that are used in the projections. Discuss the results of the organic growth strategy along with its strengths and weaknesses.
How much are you willing to pay for one share of J.M. Smucker Co. stock if the company just paid a $0.70 annual dividend, the dividends increase by 3.0 percent annually, and you require a 10 percent rate of return?
A purely competitive firm finds that the market price for its product is $30.00. It has a fixed cost of $100.00 and a variable cost of $17.50 per unit for the first 50 units and then $35.00 per unit for all successive units. What is the average varia..
Assume a two-year Euro-note (pays coupon annually), $100,000 par value, an annual coupon rate of 10 percent and convexity of 2.7. If today’s YTM is 11.6 percent and term structure is flat, a. What does convexity measure? Why does convexity differ amo..
What kinds of conflicts can arise because of this goal? Please explain.
The yield to maturity on a bond:
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