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The company is choosing between machine A and B (they are mutually exclusive and the company can only pick one). The initial cost of machine A is $400,000 and it will last for 7 years before it needs to be replaced. The cost of operating machine A each year is $50,000. The initial cost of Machine B is $280,000 and it will last for 5 years before it needs to be replaced. The cost of operating machine B is $70,000 in cash flow per year. If the required rate of return is 9%,
(a) Calculate the 7 year and 5 year annuity factors at 9% annual interest.
(b) Using the annuity factors, find the PV of Machine A and Machine B including all costs (initial + operating).
(c) Which machine is a better choice for the company after considering the different lives of the projects? (Note: be sure to use the equivalent annual annuity method)
What are some important considerations when deciding to contribute to an employee sponsored 401K plan? What are some key advantages of this plan and how do they compare to a traditional individual retirement plan (IRA)?
If you are risk averse, you should choose an asset allocation that is:
Tulley Appliances, Inc. projects next year’s sales to be $20 million. Current sales are at $15 million, based on current assets of $5 million and fixed assets of $5 million. The firm’s net profit margin is 5 percent after taxes. Tulley forecasts that..
The Timberlake-Jackson Wardrobe Co. has 10.1 percent coupon bonds on the market with ten years left to maturity. The bonds make annual payments. If the bond currently sells for $1,155.73, what is its YTM? (
What are the total costs?
The spot rare for soybeans is 1320 and the 6 month forward price is 1350 the risk free is 4% the lease rate on the 6 month soybean contract is 0.35%. What is the implied annual storage cost if the cost is continuously paid and proportional?
Expected Return If a company's current stock price is $25.00 and it is likely to pay a $.75 dividend next year. Since analysts estimate the company will have a 12% growth rate, what is its expected return?
A company has just paid a dividend of 4.19$. Its discount rate is 8.3%, and the expected perpetual growth rate is 3.8%. What is the stock's Capital Gain Yield?
Fresh off the excitement of the 2012 London Olympic Games, you decide that you want your firm to take advantage of the profits to be made for the 2016 games in Rio de Jeneiro. This $6 million is the after-tax terminal value that is in year 4 (that is..
Your portfolio actually earned 6.2 percent for the year. You were expecting to earn 8.6 percent based on the CAPM formula. What is Jensen's alpha if the portfolio standard deviation is 12.1 percent and the beta is .93?
Frost Inc. issued a 20-year, 8% semi-annual bond 5 years ago. The bond currently sells for 105% of its face value. The company’s tax rate is 40%. What is the pre tax cost of debt? What is the after-tax cost of debt?
Assume both portfolios A and B are well diversified, that E(rA) = 13.6% and E(rB) = 14.4%. If the economy has only one risk factor, and βA = 1 while βB = 1.1, what must be the risk-free rate?
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