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Warmack Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $390,000 is estimated to result in $150,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a salvage value at the end of the project of $66,000. The press also requires an initial investment in spare parts inventory of $12,000, along with an additional $1,700 in inventory for each succeeding year of the project. The shop’s tax rate is 35 percent and its discount rate is 9 percent
Your uncle, Jerry, has just won a lottery prize. He has been given two options: (1) a lump sum payment of $350,000 now, or (2) $3,000 at the end of each month for the next 15 years. Assume your uncle is able to receive a 5.00 percent annual return co..
Calculating Present Values. Suppose you are still committed to owning a $150,000 Ferrari. If you believe your mutual fund can achieve a 10.25 percent annual rate of return, and you want to buy the car in 10 years on the day you turn 30, how much must..
Consider the following five hypothetical Treasury securities. What is the implied 1.5 spot rate obtained using bootstrapping? Compare your answer is part (a) to the 1.5 year par rate and explain the difference. Why do we use rates on implied zeros ra..
Calculating the Number of Periods. Calculating Rates of Return. In 2011, an 1880-O Morgan silver dollar sold for $13,113. What was the rate of return on this investment?
Suppose you just bought a 20-year annuity of $7,500 per year at the current interest rate of 10 percent per year. What is the value of your annuity today? What happens to the value of your investment if interest rates suddenly drop to 5 percent? What..
When you get wealthier, usually the best way to protect against any added liability risk is to obtain:
Orwell Building Supplies’ last dividend was $1.75. Its dividend growth rate is expected to be constant at 25% for 2 years, after which dividends are expected to grow at a rate of 6% forever. Its required return (rs) is 11%. What is the best estimate ..
Broussard Skateboard's sales are expected to increase by 15% from $8 million in 2013 to $9.2 million in 2014. Its assets totaled $2 million at the end of 2013. Broussard is already at full capacity, so its assets must grow at the same rate as project..
A nation-state whose government no longer effectively functions and has lost control of a significant portion of its territory is known as which of the following?
You are researching GT inc stock. You have assembled the following information and assumptions. State whether GT shares are overhauled, fairly valued, or undervalued, based on your forecast. Calculate the one-year holding-period return on GT stock. C..
The market value of Cable Company's equity is $60 million, and the market value of its risk-free debt is $40 million. If the required rate of return on the equity is 15% and that on the debt is 5%, calculate the company's cost of capital. (Assume no ..
Bertelli's is analyzing a project with an initial cost of $55,000 and cash inflows of $33,000 a year for two years. This project is an extension of the firm's current operations and thus is equally as risky as the current firm. What is the projected ..
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