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David Co. produces all-terrain vehicles (ATVs). The once successful line is no longer selling well, so the company is considering production of a new improved 4 passenger ATV. This can be done by buying needed production equipment. The after tax cash flow for buying this equipment is $900,000, at the beginning of Year 0. The alternative to produce the same output, is to lease that same equipment through four equal payments of $238,000 each year paid at the beginning of the year. The required rate of return (hurdle rate) for this business is 12 percent. Assume no taxes. Revenue from sales of the new 4 passenger ATV is expected to be:
Year 1 - $425,000
Year 2 $300,000
Year 3 $170,000
Year 4 $90,000
Calculate the net present value of both the new purchase option and the lease option. Show all work. Determine the best option for David and justify your answer.
Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3, which has a cost of $220,000, a 3-year expected life, and after-tax cash flows (labor savings and depre..
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It is now January 1, 2012, and you are considering the purchase of an outstanding bond that was issued on January 1, 2010. It has a 7.5% annual coupon and had a 30-year original maturity. What is the yield to maturity. If you bought this bond, which ..
this section provides the opportunity to develop your course project. conducting an internal environmental scan or
The Down and Out Co. just issued a dividend of $2.46 per share on its common stock. The company is expected to maintain a constant 4 percent growth rate in its dividends indefinitely. If the stock sells for $30 a share, what is the company's cost of ..
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A man purchased a stock one year ago for $25. The stock is now worth $34, and the total return to Lee for owning the stock was 0.38. What is the dollar amount of dividends that he received for owning the stock during the year?
What is the market price of a 5% Coupon Bond that pays $1,000 face at maturity in 10 years from now? Current market interest rate (YTM) for such a bond is 8.0% (use semi-annual discounting)
Use Runge-Kutta method to answer the solution.
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