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The president of Lowell Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer’s price is $60,000 and it falls into the MACRS 3-year class (33% in year 1, 45% in year 2, 15% in year 3, and 7% in year 4). Purchase of the computer would require an increase in net operating working capital of $2,000. The computer would increase the firm’s before-tax revenues by $20,000 per year but would also increase operating costs by $5,000 per year. The computer is expected to be used for 4 years and then be sold for $25,000. The firm’s marginal tax rate is 40 percent, and the project’s cost of capital is 14 percent. What is the operating cash flow in Year 2? A) 19,800 B) 10,240 C) 11,687 D) 13,453 E) 16,200
The Lone Star Company has $1,000 par value bonds outstanding at 9 percent interest. The bonds will mature in 17 years. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator ..
Assume that the risk-free rate is 7% and the market risk premium is 4%. What is the expected return for the overall stock market? What is the required rate of return on a stock with a beta of 1.1?
Edsel Research Labs has $27 million in assets. Currently, half of these assets are financed with long-term debt at 5 percent and half with common stock having a par value of $10. Ms. Under Plan E, 675,000 shares of stock would be sold at $10 per shar..
Suppose that today’s date is April 15. A bond with a 10% coupon paid semiannually every January 15 and July 15 is listed in The Wall Street Journal as selling at an ask price of 101:04.If you buy the bond from a dealer today, what price will you pay ..
Suppose you borrow $29000 at 6% compounded monthly over six years. Knowing that the 6% represents the market interest rate, you realize that the monthly payment in actual dollars will be $480.61. If the average general monthly interest rate is expect..
Should investors care about a multinational firm's accounting exposure - Accounting exposure is any exposure of a multinational firm's consolidated financial statements to exchange rate movements.
Central Food Brokers is considering issuing a 20-year convertible bond that will be priced at its par value of $1,000 per bond. The bonds have a 12 percent annual coupon interest rate, and each bond could be converted into 30 shares of common stock. ..
Stock Y has a beta of .9 and an expected return of 12.6 percent. Stock Z has a beta of .6 and an expected return of 8.9 percent. What would the risk-free rate have to be for the two stocks to be correctly priced?
For project A, the cash flow effect from the change in net working capital is expected to be -300 dollars at time 2, the level of net working capital is expected to be 1,300 dollars at time 0, and the level of net working capital is expected to be 1,..
The current price of a non-dividend paying stock is $50. Use a two-step tree to value a European call option on the stock with a strike price of $48 that expires in 6 months. Each step is 3 months, the risk free rate is 5% per annum, and the volatili..
Security A has an expected return of 8%t and a standard deviation of 20%. Security B has an expected return of 10% and a standard deviation of 50%. If you place half of your money in each stock, what is your expected return?
Consider a 30-year corporate bond paying 9 percent semi-annual coupon. The current yield to maturity is 11 percent. Find the modified duration. Refer to part a. If the interest changes by 25 basis points, what is the exact change in price?
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