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An industrial firm can manufacture several lines of pressure washers. The demand for a particular component required for a pressure washer is 120,000 per year. The firm has the following two options:
Buy option: A supplier is willing to provide this component at a unit sales price of $35.000, if at least 100,000 units are ordered annually.
Make option: The machine that can be used to manufacture this component costs $2,200,000 now and will have a salvage value of $120,000 after five years. The manufacturing cost per unit including the direct material and labor and the variable and fixed factory overhead is only $30.00. In addition, the annual maintenance cost of the machine is $100,000.
Calculate the unit under each of the above two options and choose the best option. Assume that the firm’s interest rate is 12%, compounded annually.
In order to expect that it will fund her retirement, Glenda needs her portfolio to have an expected return of 13.6 percent per year over the next 30 years. She has decided to invest in Stocks 1, 2, and 3, with 25 percent in Stock 1, 50 percent in Sto..
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Heavy Rain Corporation just paid a dividend of $2.79 per share, and the firm is expected to experience constant growth of 3.60% over the foreseeable future. The common stock is currently selling for $91.98 per share. What is Heavy Rain’s cost of reta..
Briefly state what the Capital Asset Pricing Model (CAPM) claims about:
The Wheel Deal Inc., a company that produces scooters and other wheeled non-motorized recreational equipment is considering an expansion of their product line to Europe. What are the annual after-tax cash flows for the Wheel Deal project? what is the..
Can any ratio or combination of ratios predict a company's long-term viability? Can you think of an example whereby one ratio incorrectly looks "good" only because another ratio is "bad"?
You have a 2-stock portfolio with a total value of $510,000. $195,000 is invested in Stock A and the remainder is invested in Stock B. If standard deviation of Stock A is 19.90%, Stock B is 9.35%, and correlation between Stock A and Stock B is –0.60,..
Over the coming year Ragwort’s stock price will halve to $50 from its current level of $100 or it will rise to $200. The one-year interest rate is 10%. What is the delta of a one-year call option on Ragwort stock with an exercise price of $100?
the dauten toy corporation currently uses an injection molding machine that was purchased 2 years ago.nbsp this machine
A portfolio consists of two assets, Stock A and the risk -free asset (T-bills). Stock A has a beta of 1.2 and an expected return of 14%. The risk-free asset currently earns 4%. If the portfolio of the two assets has a beta of 0.8, what are the weight..
Super carpeting Inc just paid a deidend (Do) of $3.12, and its dividend is expected to grow ata constant rate (g) of 6.5% per year. if the required (rs) on Super's stock is 16.25%, what is the intrinsic value of Super's shares?
You are offered $1000 (in nominal dollars) 6 years from now in exchange for a loan of $750 today. You expect inflation to run 3.3% per year, and your real hurdle rate is 5%. Should you make the loan? You have $1000 in an account that yields a nominal..
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