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Incremental Cash Flows and Project Evaluation
Classic Cars is considering expanding its product line by manufacturing classic Mustangs. The necessary equipment will cost $4,000,000 and installation costs will be $50,000. The equipment will be depreciated using a 5 year MACRS life with depreciation rates of 20%, 32%, 19.2%, 11.52% and 11.52%in Years 1-5, respectively. Projected sales in units will be 300/year for each of the next 5 years. The sales price is projected at $27,000 per car and variable costs at $18,000 per car. Fixed costs of the firm will increase by $1,200,000 per year. The company would anticipate selling the equipment for $500,000at the end of year five. To support the new operation, the company anticipates having to increase its net working capital by $600,000 at the beginning of the project, but will no longer need to maintain the higher level of working capital once it sells the equipment. If the company’s tax rate on ordinary income is 35%, its tax rate on capital gains is 15%, and its WACC is 12%, should the company do the project?
Bay City Mining, Inc. has a price of $20 a share, outstanding shares of 2.5 million, retained earnings of $1 million dollars, and a dividend yield of 2 percent. It has a price-earnings ratio of a. 50, which is low by historical standards. b. 25, whic..
You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past five years: 14 percent, –7 percent, 17 percent, 15 percent, and 10 percent. Suppose the average inflation rate over this period was 1.4 percent and the average T-bil..
A five-year project has an initial fixed asset investment of $340,000, an initial NWC investment of $36,000, and an annual OCF of −$35,000. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required re..
Consider an investor woh, on January 1, 2017, purchases a TIPS bond with an original principal of $100,000, an 4.50 percent annual (or 2.25 percent semiannual) coupon rate, and 5 years to maturity. Suppose that the semiannual inflation rate for the s..
Please provide the steps to solving this problem using a financial calculator as well as reasonings for certain steps if needed: What is the value of zero-coupon bond with a par value of $1,000 and a yield to maturity of 5.20%? The bond has 12 years ..
Your company is considering the replacement of an old delivery van with a new one that is more efficient. The old van cost $40,000 when it was purchased 5 years ago. The old van is being depreciated using the simplified straight -line method over a u..
What is the yield to maturity of a 23-year bond that pays a coupon rate of 7.44 percent per year, has a $1,000 par value, and is currently priced at $881? Assume annual coupon payments.
Scatter Diagrams and High-Low Cost Estimation From April 1 through October 31, Will County Highway Department hires temporary employees to mow and clean the right-of-way along county roads. What factors might have caused the difference in the equatio..
You plan to purchase a house for $115,000 using a 30 year mortgage pbtained from your local bank. You will make a down payment of 20 percent of the purchase price. You will not pay off the mortgage early. our bank offers you the following two options..
The firm's marginal (and average) income tax rate is 40 percent. Determine the company's optimal capital structure.
You expect to receive $15,500 at graduation in three years. You plan on investing it at 12 percent until you have $86,000. How long will you wait from now? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g...
Even though no final conclusion is currently warranted, a number of research papers, including those of Fama and French, have argued that:
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