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A bicycle manufacturer currently produces 388,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $2.10 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct in-house production costs are estimated to be only $1.60 per chain. The necessary machinery would cost $ 244,000 and would be obsolete after ten years. This investment could be depreciated to zero for tax purposes using a? ten-year straight-line depreciation schedule. The plant manager estimates that the operation would require $44,000 of inventory and other working capital upfront (year 0), but argues that this sum can be ignored since it is recoverable at the end of the ten years. Expected proceeds from scrapping the machinery after ten years are $18,300. If the company pays tax at a rate of 35% and the opportunity cost of capital is 15%, what is the net present value of the decision to produce the chains in-house instead of purchasing them from the supplier?
Infinity Industries has just issued some $100 par preferred stock with a 10 percent dividend. The stock is selling on the market for $96.17, and Infinity must pay flotation costs of 6 percent of the market price. What is the cost of the preferred sto..
Distant cash flows are discounted at higher rate as compared to near cash flows. All the project with positive cash flow should be accepted as per NPV rule.
A firm has a market value equal to its book value. Currently, the firm has excess cash of $525 and other assets of $9,200. Equity is worth $7,000. The firm has 1,000 shares of stock outstanding and net income of $420. The firm has decided to spend al..
A Japanese company has a bond outstanding that sells for 95 percent of its ¥100,000 par value. The bond has a coupon rate of 6.2 percent paid annually and matures in 18 years. What is the yield to maturity of this bond?
Which of the following statements is true of amortization?
A stock is currently selling for $100. The annual continuously compounded yield is 0.03. The annual continuously compounded risk-free interest rate is 0.11, and the stock price volatility is 0.30. Consider a $102-strike put with one year to expiratio..
You are opening an IRA that earns 6% interest compounded daily. You wish to make monthly deposits into the IRA. You also want to purchase a new car for $25,000. You plan to set aside $800 every month, which will be divided between your IRA and your c..
what amount of additional funds will super fun toys need from external sources to fund the expect growth?
What is an auxiliary enterprise? Explain and give an example.
Assessing return and risk Swift Manufacturing is evaluating an asset purchase.
In the Jackson Automotive Systems Case, what type of recommendations could you give involving this particular case?
Beasley Worldwide Data Destruction (BWDD) purchases a new computing center for $200million. They estimate a life of 5 years and a salvage value of $40 million. BDWW uses MACRSdepreciation in the five year category. They also estimate revenue at $100 ..
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