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The Cornchopper Company is considering the purchase of a new harvester. The new harvester is not expected to affect revenues, but pretax operating expenses will be reduced by $13,000 per year for 10 years. The old harvester is now 5 years old, with 10 years of its scheduled life remaining. It was originally purchased for $65,000 and has been depreciated by the straight-line method. The old harvester can be sold for $21,000 today The new harvester will be depreciated by the straight-line method over its 10-year life. The corporate tax rate is 34 percent. The firm’s required rate of return is 15 percent. The initial investment, the proceeds from selling the old harvester, and any resulting tax effects occur immediately. All other cash flows occur at year-end. The market value of each harvester at the end of its economic life is zero. Determine the break-even purchase price in terms of present value of the harvester. This break-even purchase price is the price at which the project’s NPV is zero.
Find the rate on a pure discount loan hedged with a long FRA if the loan is for $10 million and matures in 30 days, the FRA is 30-day LIBOR, the fixed rate on the FRA is 4 per
You just purchased a hom eand taken out a $410,000 mortgage. The mortgage has a 30 year term with monthly payments and an APR (with semi annual compounding) of 7.52%. How muc
Camp manufacturing turns over its inventory 5 times each year, has an average payment period of 35 days, and has an average collection period of 60 days. The firm has annual s
A 30-year bond is maturing in 5 years. The par value is $1000. The coupon rate is 6%. Coupon payment is made semi-annually. The price of this bond is $950. a) What is the yiel
A stock is currently priced at $25. In 6 months it will either be $26 or $30. The risk-free rate is 12% per annum with continuous compounding. Theorem: If the market has no ar
A city is planning a new convention center and has received bids from two contractors. One contractor's proposal would cost $10,000,000 to build plus upkeep of $150,000 per ye
Suppose that a firm's recent earnings per share and dividend per share are $2.50 and $1.50, respectively. Both are expected to grow at 9 percent. However, the firms current P/
One can apply the concept in the economic order quantity model to the management of cash balance. In this case, the "inventory" is the amount of cash kept in the company, and
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