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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 $20 million; it will last for 8 years. Both systems entail $2 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 35%, and the discount rate is 10%. Either machine will be replaced at the end of its life.
a. 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.)
XYZ Corporation has $312,900 in total assets, and its uses only common equity capital (i.e., zero debt). Its sales last year were $620,000, and its net income after tax was $24,655. Stockholders recently voted in a new management team that has promis..
Which one of the following is a speculative motive for holding cash? Southern Mills sells handmade cotton goods to national retail chains, to regional wholesale firms, and to small specialty shops. You would expect Southern Mills to: A windshield is ..
Ways the regional Federal Reserve banks influence the conduct of monetary policy include ______. Criteria for the Fed choosing a policy instrument includes _______. Standard accounting principles help financial markets work more efficiently by ______..
A given bond has 5 years to maturity. It has a face value of $1,000. It has a YTM of 6% and the coupons are paid semi annually at a 10% annual rate. What does the bond currently sell for?
A stock has an expected return of 15.5 percent, a beta of 1.50, and the expected return on the market is 12.1 percent. What must the risk-free rate be?
XYZ, Inc. just paid $2.00 dividend. Dividends are expected to grow at a 20% rate for the next five years. After that, the company has stated that the annual dividend will be $2.50 per share indefinitely. The required rate of return is 10%. What is th..
You inherit a portfolio that is 50% invested in the SP500 and 50% in US Treasuries. The total risk of the portfolio is too high in your opinion. What can you do to reduce the portfolio total risk?
On July 1, 2010, Bill invested P into a fund which accumulates at an interest rate of 7% compounded monthly. On July 1, 2012, Judy invested 100 in a fund with a discount rate of 9% compounded quarterly. On July 1, 2010, the sum of the present value o..
The portfolio managers of a firm determined that over the next year interest-sensitive assets are in the amount of $1.5 billion while interest-sensitive liabilities are in the amount of $1.8 billion. What will happen to net interest income and relati..
Bill’s Bakery expects earnings per share of $2.18 next year. Current book value is $3.9 per share. The appropriate discount rate for Bill’s Bakery is 13 percent. Calculate the share price for Bill’s Bakery if earnings grow at 4 percent forever.
Calculate Company A’s weighted average cost of debt, given the following information: (a) Tax Rate: 15%, (b) Average Price of Outstanding Bonds: $985.00, (c) Coupon Rate: 4%, (d) NPER: 12, (e) Debt: $25,000,000, (f) Equity: $22,000,000, and (g) Prefe..
Why are investors risk-averse and how can investors deal with different degrees of risk and what is the expected return on a portfolio? How can the expected return on a portfolio be manipulated to minimize the risk on that portfolio?
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