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The ABC Construction Company is considering the purchase of a diesel power shovel to improve its productivity. The company finances the purchase by borrowing from a local bank with no origination fee. The principal will be repaid with the compounded interests (annual nominal interest rate: 10%) for 5 years. The bank compounds the financial charges semi-annually. The shovel, which costs $80,000, is expected to produce a benefit of $50,000 in the first year, and $4,000 less in each succeeding year for a total of 5 years (i.e., benefit of $46,000 in year 2, $42,000 in year 3, continuing to $34,000 in the fifth year). The annual maintenance and operation cost of the equipment is $15,000 over 5 years. The company will sell the equipment with the expected resale price of $5,000 at the end of year 5. Draw cash flow diagrams and determine whether the purchase is worthwhile at the MARR of 12%
Calculate the expected value of the project's net present value (NPV) and determine the probability that the project will have a negative NPV.
Disposition effect is the tendency of individual investors to
The stock price of Jenkins Co. is $53.90. Investors require a 13 percent rate of return on similar stocks. If the company plans to pay a dividend of $3.60 next year, what growth rate is expected for the company’s stock price?
Explain the theory of Comparative Advantage, and its implication for production and trade. Are there some countries that have no comparative advantage? What happens if two countries have exactly the same skill, technology, and labor costs? How could ..
What's the future value of the initial $1,100 investment after 20 years? We assume the expected annual return is 8%.
The Green Giant has a 4 percent profit margin and a 30 percent dividend payout ratio. The total asset turnover is 1.2 and the equity multiplier is 1.5. What is the sustainable rate of growth?
White Rock Uses Marketing Strategies to Revitalize Company Larry Bodkin had a tough road ahead of him when he became president of White Rock Beverages. Founded in the late 1800s, White Rock’s sparkling water reached its heyday in the early 20th centu..
The Pinkerton Publishing Company is considering two mutually exclusive expansion plans. Plan A calls for the expenditure of $44 million on a large-scale, integrated plant that will provide an expected cash flow stream of $6 million per year for 20 ye..
Prepare an ending 1998 Income Statement and Balance Sheet from the following information: Sales $800,000; Cost of Goods Sold $300,000; Accounts Receivables $20,000; Bonds Outstanding $160,000; Accounts Payable $20,000; Advertising Expense $1,000; Adm..
The spot rate for the Japanese yen currently is ¥107 per $1. The one-year forward rate is ¥106 per $1. A risk-free asset in Japan is currently earning 7 percent. If interest rate parity holds, what rate can you earn on a one-year risk-free U.S. secur..
Use the following data from a firm's pro forma (i.e., projected or forecasted) financial statements to calculate the following profitability ratios for the firm, assuming that all stocks are common stocks: (a) net profit margin; (b) return on total a..
The gross amount of an invoice with freight charge included is $500. The freight charge is $100. The invoice is dated November 29 with terms of 1/10 EOM. Payment is made on January 4. Find: (a) the cash discount, and (b) the net amount paid.
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