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Vandalay Industries is trying to choose between two alternative (mutually exclusive) machines. Whichever machine is selected will be utilized for the foreseeable future (in addition, for the foreseeable future, all revenues, costs and expenses are expected to remain unchanged). Machine A costs $2,400,000 and will last (economic life) four years. Variable costs will be 35% of sales, and fixed costs are $180,000 per year. The machine will be depreciated over 3 years, straight line. Sales revenues will be $2,000,000 per year. Machine B costs $3,300,000 and will last (economic) five years. Variable costs will be 30% of sales, and fixed costs are $110,000 per year. The machine will be depreciated over 3 years, straight line. Sales revenues will be $2,000,000 per year. The required return is 10% and the tax rate is 40%. Which machine, if either, should Vandalay Industries select? Be sure to provide quantitative justification for your answer.
One year ago, ACME issued 15-year bonds at par. The bonds have a coupon rate of 6.5 percent and pay interest annually. Today, the market rate of interest on these bonds is 7.2 percent. How does the price of these bonds today compare to the issue pric..
Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt−equity ratio of 0.80. It’s considering building a new $53 million manufacturing facility. This new plant is expected to generate aft..
Last year, Alice's wealth increased by $X and it gave her z units of happiness (or utility). This year Alice's wealth increased again by $X but her utility went up by less than z units. What is this an example of? Diminishing marginal utility of weal..
A municipal bond has 5 years until maturity and sells for $5,156. If the coupon rate on the bond is 5.88 percent, what is the yield to maturity? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)
Trigen Corp. management will invest cash flows of $426,996, $825,520, $1,400,031, $818,400, $1,239,644, and $1,617,848 in research and development over the next six years. If the appropriate interest rate is 9.34 percent, what is the future value of ..
suppose that the assets of a bank consist of 500 million of loans to bbb-rated corporations. the pd for the
A firm has a debt- equity ratio of 1.0. The required return on the firm’s assets is 16.1% and the pretax cost of debt is 9.1%. Ignore taxes. What is the firm's cost of equity?
A bond has duration of 5.5 years. Its current market price is $980. Interest rates in the market are 4 percent today. It has been forecasted that interest rate will rise to 5 percent over the next couple of weeks. How will the bond's price change in ..
Present a brief side-by-side comparison of the commentary in the MD&A of 2013 to that of 2012. Were the same business drivers discussed? Were they assigned the same importance by management? Discuss any variations you observed, and the possible reaso..
Investment X offers to pay you $3,700 every year for the next nine years, whereas investment Y offers to pay you $5,500 per year for the next five years. If the interest rate is 6%, which investment has the higher present value?
The Absolute Zero Co. just issued a dividend of $2.95 per share on its common stock. The company is expected to maintain a constant 6.1 percent growth rate in its dividends indefinitely. If the stock sells for $59 a share, what is the company’s cost ..
You want to buy a house within 3 years, and you are currently saving for the down payment. You plan to save $7,000 at the end of the first year, and you anticipate that your annual savings will increase by 5% annually thereafter. Your expected annual..
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