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The Pre-Tech Company is currently considering the purchase of some new machinery. The machinery will have a useful life-time of 9 years and will cost $ 600,000 to be paid in the current period. If it decides to purchase it, the company expects that the new machinery will generate an initial cash flow of $100 000 one year from now. The cash flow is expected to grow at the rate of 4% per year for years 2 through 4, but then to decline at the rate of 2% per year for years 5 through 9 at which time the machinery will be scrapped. (Assume that the scrap value is zero.) The appropriate discount rate for this project is 16%. Is this project worth undertaking? Draw the timeline.
Which of these three bonds offers the highest current yield? Which one has the highest yield to maturity?
Lee Manufacturing's value of operations is equal to $900 million after a recapitalization (the firm had no debt before the recap). Lee raised $300 million in new debt and used this to buy back stock. Lee had no short-term investments before or after ..
Suppose there are two mortgage bankers. Banker 1 has two $800,000 mortgages to sell. The borrowers live on opposite sides of the country and face an independent probability of default of 6%, with the banker able to salvage 40% of the mortgage value i..
Rabie, Inc., has an issue of preferred stock outstanding that pays a $5.00 dividend every year, in perpetuity. If this issue currently sells for $80.10 per share, what is the required return?
When a new depositor opens a $5,000 CD at Melvin's Bank, its assets ________ and its liabilities _____
Several things emerge from this table. First, interest rates apparently fell between December 31, 1995, and May 6, 2008 (why?). After that, however, they rose (why?). The bond's price first gained .84 percent and then lost 30.3 percent. These swings ..
Capital rationing: IRR and NPV approaches Valley Corporation is attempting to select the best of a group of independent projects competing for the firm’s fixed capital budget of $4.5 million. Use the internal rate of return (IRR) approach to select t..
CSM Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $493,000 is estimated to result in $192,000 in annual pretax cost savings. The press falls in the MACRS five-year class (MACRS Ta..
Bonds issued by the Coleman Manufacturing Company have a par value of $1,000, which of course is also the amount of principal to be paid at maturity. The bonds are currently selling for $640. They have 10 years remaining to maturity. The annual inter..
Sarah opens an investment account with an initial deposit of $ 1900. She then sets up monthly deposits of $ 100 to the account. If the account earns 4.5% interest compounded monthly, how much money will she have in the account in 4 years?
The 2010 balance sheet of Maria’s Tennis Shop, Inc., showed long-term debt of $5.5 million, and the 2011 balance sheet showed long-term debt of $5.9 million. The 2011 income statement showed an interest expense of $135,000. What was the firm’s cash f..
What is the difference between flow, stock, and concentration statistics? How is each type of statistic used?
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