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A manufacturing company invests $100,000 in a new piece of equipment. Operating expenses for this new piece of equipment is estimated to be $4,000 starting EOY1 and increasing by $200 per year at the EOY2 and for the next 9 additional years. Additional revenues after placing this piece of equipment in-service are projected to be $20,000 the first year (EOY01) and remaining constant for 4 additional years. After that, additional revenue is expected to increase to $22,000 at EOY6 and increase at the rate of $100 per year from EOY7 through EOY10. At the end of 10 years the piece of equipment will be sold for $10,000. The nominal rate of interest for all years is 12%.
a. Draw a cash flow diagram from the company's perspective. (Neatness and accuracy count)
b. What is the present value dollars for all cash flows? (Move all dollars to time=O)
c. What is the uniform series of cash flows for years 1 through 10 that is equivalent to all the cash flows over the ten year period?
What is risk aversion? If common stockholders are risk averse, how do you explain the fact that they often invest in very risky companies?
A proposed cost-saving device has an installed cost of $630,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes. The required initial net working capital investment is $45,000, the margi..
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2 pages single space. A) Overview/Summary, B) Opinion/Analysis, C) Relevance to financial management, The Overview/Summary section should include a statement of the author’s hypothesis or proposition. This section should be the briefest.
Find the hedge ratio for a put option using the data provided. Use the hedge ratio to show the loss on a portfolio of 200 shares if the portofolio is hedged with put options. The percentage loss on the shares is 2%.
Brodkey Shoes has a beta of 1.10, the T-bond rate is 5.5%. The annual return on the stock market during the past 3 years was 15.00%, but investors expect the annual future stock market return to be 14.00%. Based on the SML, what is the firm's require..
Let us say that you know all about Beta and you decide to invest $10,000 and borrowed $10,000 to purchase shares in IBM. IBM was selling at $100 per share. How many shares could you have bought if you paid $250 in commission and did not use margin?
The Lunch Counter is expanding and expects operating cash flows of $32,500 a year for seven years as a result. This expansion requires $28,000 in new fixed assets. These assets will be worthless at the end of the project. In addition, the project req..
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