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Lang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $200,000, has a four-year life, and requires $65,000 in pretax annual operating costs. System B costs $282,000, has a six-year life, and requires $59,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Whichever project is chosen, it will not be replaced when it wears out. The tax rate is 30 percent and the discount rate is 9 percent.
Calculate the NPV for both conveyor belt systems.
Arbitrage Financial is offering two possible investments with the same level of risk.
Determine the amount of each payment required for a sinking fund in order that enough money will be available to pay off a $445,000 loan in 14 years and 3 months; the interest is 3.15% compounded quarterly.
Apple Corporation wants to issue bonds with a 9% coupon rate, a face value of $1,000, and 12 years to maturity. Apple estimates that the bonds will sell for $1,090 with issuing (floatation costs equal $15 per bond – this reflects an 8% before tax cos..
How much debt is outstanding in a firm that has calculated the present value of a perpetual tax shield to be $300,000 if the tax rate is 35% and the debt carries a 10% rate of return?
Hayes Corporation has $300 million worth of common equity on its balance sheet, and 6 million shares of stock outstanding. The company's Market Value Added (MVA) is $162 million. What is the company's stock price?
Explain why the current book value of the capital structure is likely to be different than a company's target capital structure?
Rd = yield on the firm's bonds = 7.00% and the risk premium over its own debt cost = 4.00%. (2) Rf = 3.00%, RPM = 6.00%, and beta = 1.25. (3) D0 = $1.20, P0 = $35.00, and g = 6.00% (constant). You were asked to estimate the cost of common equity base..
A loan of $12,500 is made at an effective interest rate of 8.5%. Payments are made at the end of each interest period. Each payment equals twice the interest due until the borrower pays off the outstanding debt with a final payment of, at most, $1,80..
The stock of Alpha Company has an expected return of 16.25% and a beta of 1.35, and Gamma Company stock has an expected return of 10.50% and a beta of X. The beta of a portfolio P is 1.05. The portfolio P consists of 40% of the investment in Alpha an..
Microhard has issued a bond with the following characteristics: Calculate the price of this bond if the YTM is 7%
18,109,000 total assets, 13,682000 Current Liabilities 4,427000 working capital with a 20% increase in revenue in this next year calculate and discuss the effect of the revenue increase on the firms working capital policy and provide the calculations
Cavo Corporation expects an EBIT of $19,750 every year forever. The company currently has no debt, and its cost of equity is 15 percent. The corporate tax rate is 35 percent. What is the current value of the company? Suppose the company can borrow at..
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