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The McEnally Toy Corporation currently uses an injection molding machine that was purchased 2 years ago for $8,000. This machine is being depreciated on a straight line basis, and it has 4 years of remaining depreciable life and 6 years of remaining useful life. The estimated market value for the machine at the end of its useful life is $0. Richard McEnally is confident, however, that the machine could be sold today for $4,000. The firm is considering a replacement machine that will cost of $8,000, last (and be depreciated over) 6 years, and have a market value of $800 at the end of its useful life. The replacement machine would permit an output expansion, so sales will be $1,000 higher (than with the old machine) each year for six years. In addition, due to the proposed machine's much greater efficiency, operating expenses will be $1,500 less (than with the old machine) in each year. The new machine would require that inventories be increased from today's level of $40,000 to $45,000 at the end of year 1, $50,000 at the end of year 2, $52,000 at the end of years 3-5, and back down to $40,000 at the end of year 6. The firm's marginal federal-plus-state tax rate is 40 percent, and its cost of capital is 15 percent. Should McEnally replace the old machine? Provide a numerical solution.
A "three against nine" FRA has an agreement rate of 5.25%. You believe that six-month LIBOR will be 5.6% in three months. You decided to speculate using a FRA with a $5,000,000 notional amount. Determine whether you should buy or sell the FRA and als..
Identify several large foreign institutions that are major lenders in the United States. Do any have a basic competitive advantage over U. S. commercial banks? Explain.
Elk City stock currently sells for $37.70 per share. If you were on the utility regulatory commission, what rate of return would you allow Elk City to earn?
The Five & Dime store has a cost of equity of 15.8%, a pretax cost of 7.7%, and a tax rate of 35%. What is the firm's weighted average cost of capital if the debt-equity ratio is 0.40?
Calculate the expected return and standard deviation of your portfolio.
Let’s assume that you have been asked to calculate risk-based capital ratios for a bank with the following accounts. Calculate the equity capital ratio. Calculate the Tier 1 Ratio using risk-adjusted assets. Calculate the Total Capital (Tier 1 and Ti..
What is the present value of these cash flows if the appropriate discount rate is 8 percent?
Using the adjusted present value method, calculate the APV of the project.
A thrift has funded 10% fixed-rate assets with varable rate liabilites at LIBOR+2 (L+2) percent. A bank has funded variable rate assets with fixed rate liabilities at 6%. The bank's variable rate assets earn LIBOR +1 (L+1) percent. What will be the n..
The percent of sales method does not accurately estimate the balances for lumpy assets. which of the following statements best describes the possible errors?
Assume that these services must make a combined profit of $25,000 .Now what is the fee schedule? (To answer this question, assumethat the profit requirement is allocated in the same way as overheadcosts.)lied Laboratories is combining some of its mos..
Assume that Duever stock is priced at $80 per share and pays a dividend of $2 per share. - If, after one year, the stock is sold at a price of $90 per share, what is the return to the investor?
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