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One year ago, your company purchased a machine used in manufacturing for $120,000. You have learned that a new machine is available that offers many advantages; you can purchase it for $140,000 today. It will be depreciated on a straight-line basis over 10 years, after which it has no salvage value. You expect that the new machine will produce EBITDA (earning before interest, taxes, depreciation, and amortization) of $40,000 per year for the next 10 years. The current machine is expected to produce EBITDA of $25,000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 11 years, after which it will have no salvage value, so depreciation expense for the current machine is $10,909 per year. All other expenses of the two machines are identical. The market value today of the current machine is $50,000. Your company’s tax rate is 42%, and the opportunity cost of capital for this type of equipment is 12%. Is it profitable to replace the year-old machine?
a. NPV of replacement is $ ............... . (Round to the nearest dollar.)
b. Should your company replace the old machine? A. No, there is a loss from replacing the machine. B. Yes, there is a profit from replacing the machine. Answer is ...........
Two of the major investment markets in the United States are the New York Stock Exchange and NASDAQ. Explain the major differences between the two, including a discussion of how you would use each to purchase investments.
A deposit of $800 is planned for the end of each year into an account paying 8 percent/year compounded annually. The deposits were not made for the tenth and eleventh years. All other deposits were made as planned. What amount will be in the account ..
A 6.60 percent coupon bond with 15 years left to maturity is priced to offer a 5.3 percent yield to maturity. You believe that in one year, the yield to maturity will be 6.0 percent. What would be the total return of the bond in dollars? What would b..
Malholtra Inc. is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative), in which case it will be rejected. WACC: 10.00% Ye..
Barenbaum Industries projects that cash outlay of $4.5 million will occur uniformly throughout the year. Barenbaum lans to meet its cash requirements by periodically selling marketable securities from its portfolio. Use the Baumol model to determine ..
Suppose you deposit $2,000 at the end of year one, nothing at the end of year 2, $800 at the end of year 3, and $1,200 and the end of year 4. Assume these amounts will be compounded at an annual rate of 8%. How much will you have deposited at the end..
Assume that the expectations theory holds, and that liquidity and aturity risk premiums are zero, If the annual rate of interest on a 2year Treasury bond is 8 percent and the rate on a 1-yearTreasury bond that is issued today is 6 perecnt, What rate ..
Keys Printing plans to issue a $1,000 par value, 2... Bookmark Keys Printing plans to issue a $1,000 par value, 20-year noncallable bond with a 7.00% annual coupon, paid semiannually. The company's marginal tax rate is 40.00%, but Congress is conside..
If a $100 million in cash was used to pay off Accounts Payable, which of the following Balance Sheet items would be affected?
A stock sells for $30. The next dividend will be $3 per share. If the return on equity ROE is a constant 15% and the company reinvests 40% of earnings in the firm, what must be the opportunity cost of capital?
A family currently live in an apartment whose monthly rent is $950. They are thinking of buying a house which would cost $220,000. They plan to live in this house for 5 years and sell it at the end of the 5th year. Calculate the Post tax Mortgage Cos..
DeVille Industrial Machines issued 143,000 zero coupon bonds four years ago. The bonds originally had 30 years to maturity with a 7.3 percent yield to maturity. Interest rates have recently increased, and the bonds now have an 8.4 percent yield to ma..
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