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Holmes Manufacturing is considering a new machine that costs $270,000 and would reduce pretax manufacturing costs by $90,000 annually. Holmes would use the 3-year MACRS method to depreciate the machine, and management thinks the machine would have a value of $22,000 at the end of its 5-year operating life. The applicable depreciation rates are 33%, 45%, 15%, and 7%. Net operating working capital would increase by $21,000 initially, but it would be recovered at the end of the project's 5-year life. Holmes' marginal tax rate is 40%, and a 12% WACC is appropriate for the project.
You own a portfolio equally invested in a risk-free asset and two stocks. One of the stocks has a beta of 1.15 and the total portfolio is equally as risky as the market. What must the beta be for the other stock in your portfolio?
VALUE OF CUSTOMER RELATIONSHIP MANAGEMENT
A freight-hauling firm estimates that it will need a new forklift in six years. The estimated cost of the vehicle is $40,000. The company sets up a sinking fund that pays 8% compounded semi annually, into which it will make semi annual payments to ac..
According to the Rule of 72, how long would it take for $1000 to become $8000?
Tangshan Industries has issued a bond which has a $1,000 par value and a 13 percent annual coupon interest rate. The bond will mature in ten years and currently sells for $1,250. Using this information, the yield to maturity on the Tangshan Industrie..
A bond with a $1,000 par value has an 8 percent annual coupon rate. It will mature in 4 years, and annual coupon payments are made at the end of each year. Present annual yields on similar bonds are 6 percent. What should be the current price?
When choosing which types of assets to hold, the buyer must determine the trade-off between:
Mr. Smith borrows $8,000 from a bank that charges interest at 6% compounded monthly. Mr. Smith has to pay the money back with six equal payments. However, the first payment is to be made immediately on receipt of the $8000. Determine the size of the ..
The AA Corporation expects next year's net income to be $20 million. The firm's debt ratio is currently 50%. AA has $10 million of profitable investment opportunities, and it wishes to maintain its existing debt ratio. According to the residual distr..
A stock had returns of 14 percent, 25 percent, and 3 percent for the past 3 years. Based on these returns, what is the probability that this stock will earn at least 25.00 percent in any one given year? 5.0 percent 1.0 percent 2.5 percent 0.5 percent..
Causes of Problems for Financial Institutions during the Financial Crisis: Briefly discuss the financial crisis. Determine and discuss the underlying causes of problems experienced by financial institutions during the recent financial crisis. Explain..
You are considering two bonds. Both have semi-annual, 8 percent coupons, $1,000 face values, and yields to maturity of 7.5 percent. Bond S matures in 4 years and Bond L matures in 8 years. What is the difference in the current prices of these bonds?
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