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TelCo must decide whether to replace a computer system with a new model. TelCo forecasts net before tax cost savings from the new computer over five years as given below (in $000). It has a 12 percent cost of capital, a 35 percent tax rate, and uses straight line depreciation. Year 1 2 3 4 5 ($) 350 350 300 300 300 a. The new computer costs $1 million but TelCo is eligible for a 15 percent investment tax credit (ITC) in the first year. The ITC reduces Telco's taxes by an amount equal to 15 percent of the equipment's purchase price. In addition, the old computer can be sold for $450,000. If the old computer originally cost $1.25 million and is three years old (depreciable, not economic, life is five years), what is the net investment required in the new system? Assume that there was no ITC on the old computer and that both computers are being depreciated to a zero salvage value. b. Estimate the incremental operating cash flows associated with the new system. c. If the new computer's salvage value at the end of five years is projected to be $100,000, should TelCo purchase it?
Objective type questions on capital budgeting and what is the average of using simulation in the capital budgeting process is
Computation of effect of hiring employees and what should the company do to meet this demand
If you have 2 million dollars in an account that earns 9% interest compounded continuously and in 30 years you want your account to be empty, how much money do you need to take out each year? (taking the same amount out each year)
Midyear on July 31st, the Baldwin Corporation's balance sheet reported: Total Liabilities of $128.165 million Total Common Stock of $6.350 million Cash of $10.050 million Retained Earnings of $45.041 million. What were the Baldwin Corporation's to..
on september 4 2001 alabama power co. had two issues of ordinary preferred stock that traded on the nyse. one issue
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A colleague argues that this is too conservative, as SuperiorCo will create value well beyond the forecast period. What is the flaw in your colleague's arguement?
Compare and contrast the potential benefits of the domestic securities market to those investing in the foreign securities markets.
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why is the residential mortgage a difficult loan for the financial system to handle? What are the different ways the financial system have dealt with it?
During the slow winter period the firm holds $10,000 in cash, $55,000 in inventory, $40,000 in accounts receivable, and $35,000 in accounts payable. Calculate Icy Treats' minimum and peak funding requirements.
what types of securities must be issued by a firm which is on the growing stage in order to meet the financial
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