Deciding whether to invest in new machine

Assignment Help Financial Management
Reference no: EM131346386

Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $326,000 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at $1,760,000. The cost of the machine will decline by $111,000 per year until it reaches $1,205,000, where it will remain.

If your required return is 13 percent, calculate the NPV today.

If your required return is 13 percent, calculate the NPV for the following years. Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Should you purchase the machine?

If so, when should you purchase it?

Today

One year from now

Two years from now

Reference no: EM131346386

Questions Cloud

What is the expected risk premium for this stock : A stock is expected to earn 22 percent in a boom economy, 13.00 percent in a normal economy, and lose 30 percent in a recessionary economy. There is a 17 percent chance the economy will boom and a 63 percent chance the economy will be normal. What is..
What is standard deviation of these returns : A stock is expected to earn 53 percent in a boom economy and 26 percent in a normal economy. There is a 39 percent chance the economy will boom and a 61.0 percent chance the economy will be normal. What is the standard deviation of these returns?
What is bond current price if the yield to maturity : A bond has 8 years to maturity, a 7 percent coupon, a $1,000 face value, and pays interest semiannually. What is the bond's current price if the yield to maturity is 6.91 percent?
Statements regarding conventional finance-behavioral finance : Which of the following statements regarding conventional finance and behavioral finance is true?
Deciding whether to invest in new machine : Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $326,000 per year. You believe the technology used in the machine has a 10-year life; The machine is currently priced at $1,760,000. The cost of t..
What is the expected npv for this business venture : Use simulation to analyze the Sound's Alive problem. Based on your results, what is the expected net profit for the years 2004 through 2007, and what is the expected NPV for this business venture?
Calculate each stock coefficient of variation : Your research has determined the following information about the common stock of two particular firms. Explain what is meant by the stock’s “Expected Return”. Calculate each stock’s coefficient of variation.
What is the present value of the offer if the discount rate : Tom Adams has received a job offer from a large investment bank as a clerk to an associate banker. His base salary will be $47,000. He will receive his first annual salary payment one year from the day he begins to work. What is the present value of ..
What was last year dividend per share : After a 4-for-1 stock split, Perry Enterprises paid a dividend of $1.70 per new share, which represents a 8% increase over last year's pre-split dividend. What was last year's dividend per share?

Reviews

Write a Review

Financial Management Questions & Answers

  Determining the cost of capital-cost of preferred stock

The cost of preferred stock, rp, used in the weighted average cost of capital equation is calculated as the preferred dividend, Dp, divided by the current price of the preferred stock, Pp. ,tax adjustment is made when calculating rp because preferred..

  What is the price of the cash-or-nothing call option

Dianca is trying to use Monte Carlo simulations with 3,000 trials to price a package of two exotic options. The first option is the so-called cash-or-nothing call option that delivers a fixed cash amount R if the European counterpart is in the money ..

  What growth rate of earnings would you forecast for? dfb

?DFB, Inc. expects earnings next year of $4.67 per? share, and it plans to pay a $2.25 dividend to shareholders. DFB will retain $2.42 per share of its earnings to reinvest in new projects that have an expected return of 15.9% per year. What growth r..

  How the total effective tax burden change

How did the total effective tax burden change for the lowest and highest deciles of the population between 1979 and 2006?

  Associated with business risk

Which of the following is NOT associated with (or does not contribute to) business risk? Recall that business risk is affected by a firm's operations.

  How many of coupon bonds would you need to issue to raise

BOND FACE 1,000 IF NEEDED) Suppose your company needs to raise $35 million and you want to issue 25-year bonds for this purpose. Assume the required return on your bond issue will be 7.5 percent, and you’re evaluating two issue alternatives: How many..

  Amortization schedule

Complete the first three lines of an amortization schedule for the following loan: You borrow $ 7000 with an annual interest rate of 13% over 7 years

  Evaluate pros and cons of increased regulatory requirement

New regulatory requirement imposed on banks and financial institutions may have impacted a bank’s ability to generate mortgages for home buyers by increased requirements for disclosures, notices, statements, and documents related to lending. Evaluate..

  Compute the time varying beta for gm stock

Build a bivariate stochastic volatility model for the monthly log returns of General Motors stock. - Discuss the relationship between the two volatility processes and compute the time-varying beta for GM stock.

  Funding from international lending institutions

Explore whether or not funding from international lending institutions like the World Bank and the IMF are helping or hindering the social, economic, or political development of the country that you have selected. Support your response with examples.

  Exercised prior to maturity

Stock price of A is $80 now. Over each of the next three-month periods it is expected to go up by 10% or down by 7%. The stock has a quarterly dividend yield of 10%. If the riskfree rate is 5%o p.a., what is the current value of a 6-month call option..

  The capital-gains yield on the stock

An investor earns dividends of $450 during the course of the year. At the end of the year, the stock is worth $10,700. The capital-gains yield on the stock was 8 percent. At the beginning of the year, the stock was worth?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd