Assume that the maintenance costs occur at year-end

Assignment Help Financial Management
Reference no: EM131052394

Gold Star Industries is contemplating a purchase of computers. The firm has narrowed its choices to the SAL 5000 and the HAL 1000. Gold Star would need seven SALs, and each SAL costs $3,150 and requires $360 of maintenance each year. At the end of the computer’s eight-year life, Gold Star expects to sell each one for $175. Alternatively, Gold Star could buy eight HALs. Each HAL costs $3,650 and requires $415 of maintenance every year. Each HAL lasts for six years and has a resale value of $170 at the end of its economic life. Gold Star will continue to purchase the model that it chooses today into perpetuity. Gold Star has tax rate of 38 percent. Assume that the maintenance costs occur at year-end. Depreciation is straight-line to zero. What is the EAC of each model if the appropriate discount rate is 8 percent?

Reference no: EM131052394

Questions Cloud

Profit as a function of both order quantity : Joseph must order each year's calendar in August for delivery and eventual sale by December 31st. In previous years, standard Business Calendar sales have ranged from a low of 2000 to a high of 2300, so assume that demand is uniformly distributed ..
Advise what is the liability of mr smith for his actions : BLO 5540 - BUSINESS AND COMPANY LAW ASSIGNMENT. Advise what is the liability of Mr Smith for his actions leading up to the voluntary administration of XYZ Co Ltd? Explain what law might apply to Mr Smith and whether he has breached any duties owed..
Statement is correct with regard to bond valuation : Which of the following statement is correct with regard to bond valuation?
Stock is expected to generate an end-of-period dividend : A common stock is expected to generate an end-of-period dividend of $5 and an end-of-period price of $62. If this security has a beta coefficient of 1.3, the risk-free interest rate is 10%, and the expected return on the market portfolio is 19%, then..
Assume that the maintenance costs occur at year-end : Gold Star Industries is contemplating a purchase of computers. The firm has narrowed its choices to the SAL 5000 and the HAL 1000. Gold Star would need seven SALs, and each SAL costs $3,150 and requires $360 of maintenance each year. Assume that the ..
What classes of nish materials can you use in exit stairway : What is the required re resistance rating for the walls around the elevator shafts? For the purposes of this exercise, when referring to Figure 22.7, assume the highest rating requirement where a range of requirements is provided.
Relationship between price and estimated average quantity : BUS1BAN Group Research Project - What is the relationship between price and estimated average quantity consumed by students in your sample?
Provide an example of chiaroscuro artwork : You must provide a personal definition utilizing academic sources for terms and provide an example of following artwork that exemplifies the definition provided. ottonian, carpet page, Bible, chiaroscuro and pagan art.
Analysts were forecasting consensus earnings per share : Maxim Inc. reported a per-share book value of $10.47 in its balance sheet on December 31, 2014. In early 2015, analysts were forecasting consensus earnings per share of $1.71 for 2015 and 1.96 for 2016. Calculate the per share value in early 2015 ass..

Reviews

Write a Review

Financial Management Questions & Answers

  Risk-free rate-what is the cost of equity

The risk-free rate on 30 year U.S. Treasury bonds is 2.75% and the expected rate of return on the overall stock market is 7%. The BOW company has a beta of 1.4. What is the cost of equity?

  Portfolio beta an individual

Portfolio beta An individual has $30,000 invested in a stock with a beta of 0.6 and another $60,000 invested in a stock with a beta of 1.2. If these are the only two investments in her portfolio, what is her portfolio's beta? Round your answer to two..

  What signals does dividend policy provide to investors

Do we always select those projects that have the highest return on investment? What other factors play into capital budgeting decisions? What incentive is there for a company to pay dividends? What signals does dividend policy provide to investors?

  Problem on financial management

Problem on financial management.

  Compute the current price of the preferred stock

William's All Night Long DJ, Inc. has outstanding preferred stock that pays an annual dividend of $6.00 per share.Compute the current price of the preferred stock if the investor's required return on the preferred stock is:(a) 8%(b) 10%(c) 12%

  Find the x coordinate of the absolute maximum

Find the x-coordinate of the absolute maximum for the function f(x) = (3 + 9ln(x))/x x>0f(x) = (3 + 9 ln x /x= 3 / x + 9 ln x / x

  At what price would you get a margin call

The crude oil futures contract on the New York Mercantile Exchange covers 1,000 barrels of crude oil. The contract is quoted in dollars and cents per barrel (e.g., $27.42), and the mininum price change is $0.01. The initial margin requirement is $3,3..

  Explain the firm''s cash flow due to financing activities

At the end of the year, Tum Biscuit Co. had $160 million in cash on its balance sheet, and the firm had $305 million in cash at the end of the second year. What was the firm's cash flow (CF) due to financing activities in the second year?

  What is average amount of accounts receivable outstanding

If Boyd Corp. has sales of $2 million per year (all credit) and a collection period of 35 days, what is its average amount of accounts receivable outstanding?

  What was the holding period return for the stock

A stock has had returns of 17.12 percent, 12.28 percent, 6.16 percent, 27.34 percent, and −13.69 percent over the past five years, respectively. What was the holding period return for the stock?

  Capital situation-debt and equity

Great Corporation has the following capital situation. Debt: One thousand bonds were issued five years ago at a coupon rate of 8%. They had 25-year terms and $1,000 face values. They are now selling to yield 9%. The tax rate is 36% Preferred stock: D..

  Write a letter explaining the tax effects of each option

Leyh’s Outdoor Adventures, Inc., would like begin providing life insurance coverage for its employees. Three employees are officers; each earns $100,000 per year. The other three employees each earn $40,000 per year. Evaluate this option and advise t..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd