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You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $140,000, and it would cost another $30,000 to modify the equipment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $60,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%, as discussed in Appendix 12A. The equipment would require an $8,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $50,000 per year in before-tax labor costs. The firm’s marginal federal-plus-state tax rate is 40%.
1: What is the operating cash flow for year 3?
2: What is the terminal cash flow for year 3?
3: What is the projects NPV?
4: What is the IRR
5: What is the MIRR?
Sam was injured in an accident, and the insurance company has offered him the choice of $35,300 per year for 39 years, with the first payment being made today, or a lump sum. If a fair return is 8.85%, how large must the lump sum be to leave him as w..
Village East expects to pay an annual dividend of $1.40 per share next year, and $1.68 per share for the following two years. After that, the company plans to increase the dividend by 3.4 percent annually. What is this stock’s current value at a disc..
You recently approached your bank about establishing a credit line facility. The terms offered by your bank include a nominal rate of prime + 1.5% (prime is currently 5%) on the amount borrowed, a commitment fee of 25 basis points on the unused porti..
Bonds: Consider the longest-maturity bond of the company. Assuming a current discount rate of 6%, what is the value of this bond? Common Stock: Consider the common stock of the company. Using the growth rate implied by the dividends paid five years a..
What is the relationship between a discount rate (or IRR) and a capitalization rate? What causes differences between them?
All of the following are true regarding tax implications of cash balance plans, except
The BakFirn Corporation, a publicly traded firm, has contracted with YOUCPA, your public accounting firm, for an audit. The BakFirn Corporation manufactures specialty construction tools. What is the initial audit risk? High, medium or low? What facto..
(a) If investors who purchase similar investments require a 10 percent return, what is the market value of OST's preferred stock? (b) What would be the market value of the stock if investors require an 8 percent return?
Briefly summarize the evidence relating to IPO under pricing, and discuss possible reasons for the phenomena. You are the CFO of a non-dividend paying firm that currently has excess cash reserves. You are preparing for an internal management meeting ..
Many states prohibited bank branching because of all of the following except:
With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a "surf lifestyle for the home." With limited capital, they decided to focus on surf print table and floor la..
In the billing process of a hospital, why are medical records a critical department? The DRG system of Medicare requires proper coding of clinical information in order to achieve accurate and prompt payment and to avoid fines and penalties. Which of ..
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