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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. Show your work.
Retirement Distributions Discuss one major tax implication of a pre-death or post-death situation, how it can be addressed, and the rules for minimizing tax when possible. Further discuss whether the tax deferred savings and in some cases tax deducti..
Suppose AZT is a small value stock and that you use both the CAPM and the Fama-French model to compute its cost of capital. Under which model is the cost of capital for AZT likely to be higher?
You currently owe $18,000 on a home mortgage loan at 9.5 percent interest. If you make monthly payments of $576.59 per month, how long will it take you to fully repay the loan?
The Markley Company has 3 million shares of stock outstanding. The stock has a par value of $2 per share, and is currently trading at $45 per share. According to this information, the market value (or market cap) of Markley is a.
Pooh is a country with only two occupations. You can work as a laborer or you can become an entrepreneur, who hires labor and makes profits. To become an entrepreneur, you need a loan of 20,000 pahs (a pah is the unit of currency in Pooh). Suppose yo..
Kennedy Air Services is now in the final year of a project. The equipment originally cost $35 million, of which 75% has been depreciated. Kennedy can sell the used equipment today for $8.75 million, and its tax rate is 30%. What is the equipment's af..
Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 20 percent for the next three years, with the growth rate falling off to a constant 5 percent thereafter. If the required return is 11 percent, and the company just paid a di..
You have been offered the opportunity to invest in a project that will pay $2,726 per year at the end of years one through three and $5,219 per year at the end of years four and five. These cash flows will be placed in a saving account that pays 9.49..
Suppose that B2B Inc. has a capital structure of 37 percent equity, 17 percent preferred stock, and 46 percent debt. If the before-tax component costs of equity, preferred stock, and debt are 14.5 percent, 11 percent, and 9.5 percent, respectively, w..
Several years ago, Rolen Riders issued preferred stock with a stated annual dividend of 10% of its $100 par value. Preferred stock of this type currently yields 7%. Assume dividends are paid annually. What is the estimated value of Rolen's preferred ..
You are considering acquiring a firm that you believe can generate expected cash flows of $28,000 a year forever. However, you recognize that those cash flows are uncertain. a. Suppose you believe that the beta of the firm is 2.2. How much is the fir..
Winnebagel Corp. currently sells 29,000 motor homes per year at $78,000 each and 8,000 luxury motor coaches per year at $120,000 each. The company wants to introduce a new portable camper to fill out its product line; What is the amount to use as the..
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