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I Carbonates group of companies located in Port in the South Coast is considering which of two mutually exclusive projects to accept, each with a five-year life. These projects are aimed at increasing the production capacity for limestone to boost the supply of this material to Eskom’s . Project A requires an initial expenditure of R2 300 000 and is forecast to generate annual cash flows before depreciation of R800 000. The equipment purchased at time zero has an estimated residual value after five years of R300 000. Project B costs R660 000 for equipment at the start. This has a residual value of R60 000 after five years. Cash inflows before depreciation of R250 000 per annum are anticipated. The company has a straightline depreciation policy and a cost of capital of 15 per cent (relevant for projects of this risk class). You can assume that the cash flows are also equal to the profits before depreciation.
Calculate:
1. An accounting rate of return.
2. The net present value.
3. What are the disadvantages of using ARR.
The Trektronics store begins each week with 480 phasers in stock. This stock is depleted each week and reordered. The carrying cost per phaser is $43 per year and the fixed order cost is $87. What are the current total carrying costs? What are the cu..
The interest rate on a $15,800 loan is 10.2% compounded semiannually. Semiannual payments will pay off the loan in seven years. Calculate the interest component of Payment 10. Calculate the interest paid in Year 6.
Present value of an annuity Find the present values of these ordinary annuities. Discounting occurs once a year. Round your answers to the nearest cent.
Your stock portfolio consists of only two stocks. You have $115,000 in Company A and $125,000 in Company B. Company A has an actual return of -8%, and Company B has a return of 12%. What is the return on your portfolio?
Consider the following scenarios. What is the underlying argument for government intervention in the education market and what kind of mechanism is being proposed?
You have just received notification that you have won the $2.11 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday (assuming you’re around to collect), 69 years from now. What is the present value..
A firm expects to pay dividends at the end of each of the next four years of $2.00, $1.50, $2.50, and $3.50. If growth is then expected to level off at 8 percent, and if you require a 14 percent rate of return, how much should you be willing to pay f..
An interest rate is 6% per annum with semiannual compounding. What is the equivalent rate with continuous compounding? What is the present value of $100 to be received in 3 months?
Describe the size, structure and composition of the mutual fund industry. Do you consider these characteristics as having a positive or negative impact on investors? Why?
For all organizations, especially public-traded companies, one of the main goals of the organization is to maximize the value of the firm.
If the business manager deposits $200 in a savings account at the end of each year for twenty years what will be the value of her investment:
A company has an asset value of $10 million with a standard deviation of 15%. The company has $8 million face value of zero coupon risky debt outstanding. What is the market value of the debt if the debt matures in two years? Assume a risk free rate ..
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