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The manager of PPO Inc. plans to manufacture engine blocks for classic cars from the 1960s. The revenue from the blocks will be $750,000 per year for each of the next 4 years. The equipment will cost $800,000 depreciated using a 3 year MACRS life. There will be a change in net operating working capital of $10,000. Assume a zero salvage value. Operating costs for each of the 4 years will be $250,000. Assume a 40% tax rate and a 12% discount rate (cost of capital). a. What are the cash flows for years 0 through 4? b. Calculate the net present value, the IRR, MIRR and Profitability Index, Payback for the project. c. Will you accept the project?
Give your interpretation of what the ratios calculations show and how the business can use this information to improve its performance. Justify all answers.
Under an effective interest rate of 5%, the sum of the present value of an annuity which pays $4 at the end of each period for n periods and the present value of a unique payment of $100 at the end of the nth period is equal to the sum of the present..
According the National Retail Federation and Center for Retailing Education at the University of Florida, the four main sources of inventory shrinkage are employee theft, shoplifting, administrative error, and vendor fraud. The estimated annual dolla..
Preferred stock of Ford Motors pays a dividend of $3 each year and trades at a price of $21. What is the cost of preferred stock capital for Ford?
Why is it important for managers to know the critical input variables, where critical is defined as the variables that, when changed, have the greatest effect on the project’s profitability?
Kirk Faust just won the state lottery which promises to pay him $1,500 per year for 20 years, starting from today, and $1,850 per year for years 21-45, given a 6.75% discount rate. Your company wants to purchase the proceeds from the lottery from Kir..
What is the present value of an investment that will pay you $324 at the end of the 1 year, $522 at the end of the 3, and $573 at the end of the 7 year. Assume the discount rate is 7%.
Although appealing to more refined tastes, art as a collectible has not always performed so profitably. During 2003, an auction house sold a sculpture at auction for a price of $10,331,500. Unfortunately for the previous owner, he had purchased it in..
Lamar Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 30; and it currently pays after 5 days and takes discounts. Lamar plans to expand, which will require additional financing. Assume 365 days in year for your calculation..
You are the manager of 10 people in a large organization. Everyone becomes very suspicious and upset when they receive a memo from the HR department saying their jobs are going to ve evaluated. What will you do in response to their concerns? (Give Ci..
Terminal Value plays an important role in enterprise valuation. What factors affect the estimate of Terminal Value? How sensitive enterprise valuation is to Terminal value?
The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape guitar sides. The steamer, purchased just 2 years ago, is being depreciated on a straight-line basis and has 6 years of remaining life.
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