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Vandelay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,150,000 and will last for six years. Variable costs are 35 percent of sales, and fixed costs are $285,000 per year. Machine B costs $5,382,000 and will last for nine years. Variable costs for this machine are 30 percent of sales and fixed costs are $220,000 per year. The sales for each machine will be $11.9 million per year. The required return is 10 percent, and the tax rate is 35 percent. Both machines will be depreciated on a straight-line basis. The company plans to replace the machine when it wears out on a perpetual basis. Calculate the EAC for each machine. (Enter your answer in dollars, not millions of dollars, e.g. 1,234,567. Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) EAC Machine A $ Machine B $
Snider Industries sells on terms of 3/10, net 20. Total sales for the year are $934,500. Thirty percent of the customers pay on the 10th day and take discounts; the other 70% pay, on average, 36 days after their purchases. What are the days sales out..
Lohn Corporation is expected to pay the following dividends over the next four years: $18, $14, $13, and $7.50. Afterward, the company pledges to maintain a constant 4 percent growth rate in dividends forever. If the required return on the stock is 1..
Hughes Co. is growing quickly. Dividends are expected to grow at a rate of 20 percent for the next three years, with the growth rate falling off to a constant 8 percent thereafter. If the required return is 11 percent and the company just paid a $1.4..
You purchased one EAW, Inc. 6 percent coupon bond one year ago for $1,020. The bond makes annual payments and matures four years from now. You sell the bond today when the required return is 5 percent. The inflation rate was 2.8 percent over the past..
The Extreme Reaches Corp. last paid a $1.50 per share annual dividend. The company is planning on paying $3.00, $5.00, $7.50, and $10.00 a share over the next four years, respectively. After that the dividend will be a constant $2.50 per share per ye..
Abbott & Costello has the following estimated sales: first quarter $8,100, second quarter $8,600, third quarter $9,500 & fourth quarter $11,200. Purchases are equal to 75 percent of the following quarter's sales. What is the estimated amount of purch..
The current market price of a security is $40, the security's expected return is 13%, the riskless rate of interest is 7%, and the market risk premium is 8%. a. What will be the security's price, if the covariance of its rate of return with the marke..
Garcia Industries has sales of $200,000 and accounts receivable of $18,500, and it gives its customers 25 days to pay. The industry average DSO is 27 days, based on a 365-day year. If the company changes its credit and collection policy sufficiently ..
Briefly define reverse leveraged buyouts. How have companies that have engaged in reverse LBOs performed relative to their industry peers that have not engaged in such deals? Cite relevant research to support your conclusions.
Quick Computing installed its previous generation of computer chip manufacturing equipment 3 years ago. Some of that older equipment will become unnecessary when the company goes into production of its new product. What is the after-tax cash flow fro..
You are considering adding stock in BAMEB Motorcycles to your portfolio. You found their Beta at 0.47, the risk free rate as proxied by 10-year US Treasuries at 0.55%, and return on the market as proxied by the S&P 500 at 12.38%. What return do you n..
Compute the internal rate of return on both projects. Compute the profitability index of both projects. Compute the payback period on both projects.
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