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One year ago your company purchased a machine for $110,000. You have learned that the new, much better machine is available for $150,000. In will be depreciated on a straight line basis and has no salvage value. You expect the machine to produce $60,000 per year in revenue and cost $20,000 per year to operate for the next ten years. The current machine is expected to produce $40,000 per year in revenue and also costs $20,000 per year to operate. The current machine’s depreciation expense is $10,000 per for the next 10 years, after which it will be discarded. It will have no salvage value. The market value of the current machine today is $50,000. Your company’s tax rate is 45% and the opportunity cost of capital is 10%. Should your company replace its year-old machine?
Assume you have recently graduated with your business degree, and landed a new position at a company you had been researching during your senior year in college. You have been offered a lump-sum, sign-on bonus of $5,000. Regardless of your decision t..
The LIBOR zero curve is flat at 4% (continuously compounded) out to 2 years. Swap rates for 3- and 4-year annual pay swaps are 4.5% and 5%, respectively. Estimate the LIBOR zero rates for maturities of 3 and 4 years. Give your answers as annual rates..
The H Company just issued a two-year bond at 12%. Inflation is expected to be 4% next year and 6% the year after. H estimates its default risk premium at about 1.5% and its maturity risk premium at about .5%. Because it's a relatively small and unkno..
Tom's portfolio consists solely of an investment in Merck stock. Merck has an expected return of 13% and a volatility of 25%. The market portfolio has an expected return of 12% and a volatility of 18%. The risk-free rate is 4%. Assume that the CAPM a..
You are given the following information for Huntington Power Co. Assume the company’s tax rate is 35 percent. Debt: 6,000 7.3 percent coupon bonds outstanding, $1,000 par value, 15 years to maturity, selling for 109 percent of par; the bonds make sem..
JJ Industries will pay a regular dividend of $3.15 per share for each of the next four years. At the end of the four years, the company will also pay out a $83 per share liquidating dividend, and the company will cease operations. If the discount rat..
What are the three major types of funds found in most local government accounting information systems?
Bunge paid $3.25 in dividends in the most recent past year, which is the same amount they have paid in the prior two years. Ten years ago, Bunge dividends were $1.50 per share. What is the compound average annual growth rate for Bunge dividends over ..
Is it possible to provide health care without rationing? In 1948 every household in Britain received a leaflet stating that the new National Health Service would "provide you with all medical, dental and nursing care. Everyone - rich or poor, man, wo..
Griffith Delivery Service purchased a delivery truck for $33,600. The truck has an estimated useful life of six years and no salvage value. For purposes of preparing financial statements, Griffith is planning to use straight-line depreciation. What i..
A trader creates a long butterfly spread from options with strike prices $60, $65, and $70 by trading a total of 400 options. The options are worth $11, $14, and $18. What is the maximum net gain (after the cost of the options is taken into account)?..
Lithium, Inc. is considering two mutually exclusive projects, A and B. Project A costs $95,000 and is expected to generate $65,000 in year one and $75,000 in year two. Project B costs $120,000 and is expected to generate $64,000 in year one, $67,000 ..
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