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As a financial manager for a company, you are considering a proposed project which requires an investment of $750,000 in fixed assets. The project has a five-year useful life but is classified as three-year MACRS property for tax purposes. The required initial net working capital investment is $120,000, which can be fully recovered at the end of the project’s life. The marginal tax rate of your company is 34%, and the project discount rate is 11%. The annual sales and operating cost excluding depreciation are estimated to be $550,000 and $280,000, respectively. The project can be scrapped for a market value of $60,000 (before tax) at the end of its life. Should the project be accepted?
A project requires an initial cash outlay of $40,000 and has expected cash inflows of $12,000 annually for 7 years. The cost of capital is 10%. What is the project’s discounted payback period? Show your work
The Unlimited, a national retailing chain, is considering an investment in one of two mutually exclusive projects. The discount rate used for Project A is 12 percent. Further, Project A costs $15,000, and it would be depreciated using MACRS. It is ex..
Your firm is contemplating the purchase of a new $575,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $59,000 at the end of that time. At what level of pretax cost ..
Your grandmother is gifting you $125 a month for four years while you attend college to earn your bachelor's degree. At a 6.5 percent discount rate, what are these payments worth to you on the day you enter college? what values to plug into the finan..
Imagine that you are the product manager for a new electric car similar to the Chevrolet Volt or Toyota Prius. Using all of your knowledge of the new product life cycle, speculate on the stages of the life cycle your electric car will pass through, b..
Calculate the option's exercise value? What is the significance of this value, calculate the non-operating terminal year cash flow and calculate net present value. Should the machine be purchased
Break-even Financing. Providence Co. needs dollars. Assume that the local one-year loan rate is 15%, while a one-year loan rate on euros is 7%. By how much must the euro appreciate to cause the loan in euros to be more costly than a U.S.-dollar loa..
Great Wall Pizzeria issued 8-year bonds one year ago at a coupon rate of 6.1 percent. If the YTM on these bonds is 7.5 percent, what is the current bond price?
Mullet Technologies is considering whether or not to refund a $175 million, 13% coupon, 30-year bond issue that was sold 5 years ago. It is amortizing $8 million of flotation costs on the 13% bonds over the issue's 30-year life. Mullet's investment b..
An individual has $20,000 invested in a stock with a beta of 0.3 and another $60,000 invested in a stock with a beta of 1.5. If these are the only two investments in her portfolio, what is her portfolio's beta? Round your answer to two decimal places..
Why is the time value of money important for an individual to understand in regard to their private life? What can an individual do with this information?
McKenna Sports Authority is getting ready to produce a new line of gold clubs by investing $1.85 million. The investment will result in additional cash flows of $525,000, $817,500, and $1,200,000 over the next three years. What is the payback period ..
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