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Blooper Industries must replace its magnesium purification system. Quick & Dirty Systems sells a relatively cheap purification system for $12 million. The system will last 3 years. Do-It-Right sells a sturdier but more expensive system for $18 million; it will last for 9 years. Both systems entail $3 million in operating costs; both will be depreciated straight-line to a final value of zero over their useful lives; neither will have any salvage value at the end of its life. The firm’s tax rate is 20%, and the discount rate is 11%. Either machine will be replaced at the end of its life.
Calculate the equivalent annual cost of each alternative: (Do not round intermediate calculations. Enter your answers as a positive value. Enter your answers in whole dollars, not in millions.)
How can you use the cost of common equity found above under (a) to compute the cost of retained earnings? Assuming the company is privately held, would you expect them to rely more heavily on equity or retained earnings? Explain your rationale.
The added production would require an increase in working capital in the form of stocks, valued at cost, of £300,000. The tax rate is 20 per cent and the required rate of return is 18 percent. Determine the net present value of the investment, sp..
Hook Industries' capital structure consists solely of debt and common equity. It can issue debt at rd = 8%, and its common stock currently pays a $3.00 dividend per share (D0 = $3.00). The stock's price is currently $26.00, its dividend is expected t..
financial statement analysis the specific purposes of this project are1. apply to real company the basic knowledge and
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A 10-year, 12% semi annual coupon bond with a par value of $1,000 may be called in 4 years at a call price of $1,060. The bond sells for $1,100. Because of a recession, the inflation rate expected for the coming year is only 3%. However, the inflatio..
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