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As part of its overall plant modernization and cost reduction program, the management of Tanner-Woods Textile Mills has decided to install a new automated weaving loom. In the capital budgeting analysis of this equipment, the IRR of the project was 25% versus a project required return of 11%. The loom has an invoice price of $260,000, including delivery and installation charges. The funds needed could be borrowed from the bank through a 4-year amortized loan at a 10% interest rate, with payments to be made at year-end. In the event the loom is purchased, the manufacturer will contract to maintain and service it for a fee of $22,000 per year paid at year-end. The loom falls in the MACRS 5-year class, and Tanner-Woods's marginal federal-plus-state tax rate is 35%. The applicable MACRS rates are 21%, 35%, 19%, 16%, 10%, and 7%. United Automation Inc., maker of the loom, has offered to lease the loom to Tanner-Woods for $70,000 upon delivery and installation (at t = 0) plus 4 additional annual lease payments of $70,000 to be made at the end of Years 1 through 4. (Note that there are 5 lease payments in total.) The lease agreement includes maintenance servicing. Actually, the loom has an expected life of 10 years, at which time its expected salvage value is zero; however, after 4 years, its market value is expected to equal its book value of $47,000. Tanner-Woods plans to build an entirely new plant in 4 years, so it has no interest in leasing or owning the proposed loom for more than that period. Round your answers to the nearest dollar. Should the loom be leased or purchased? PV cost of owning at 6.5% is $ . PV cost of leasing at 6.5% is $
A small, family-owned corporation would be more likely to use the contribution-to-firm risk criteria rather than the systematic risk to evaluate capital budgeting projects. If the interest rate is positive, then the present value of an annuity due wi..
$2.46 million which will be depreciated straight-line to a zero book value over the 10-year life of the project. At the end of the project the equipment will be sold for an estimated $300,000. The project will not directly produce any sales but will ..
Upon graduating from college, you make an annual salary of $51,454. You set a goal to double it in the future. If your salary increases at an average annual rate of 8.28 percent, how long will it take to reach your goal.
First identify and quantify current "weaknesses" in Carter's Estate plan. - Outline your ideas and strategies that will make his Estate Plan more effective and efficient.
Suppose an individual invests $35,000 in a load mutual fund for two years. The load fee entails an up-front commission charge of 3.9 percent of the amount invested and is deducted from the original funds invested. calculate the annual return on the m..
Mike Polanski is 30 years of age and his salary next year will be $41,600. Mike forecasts that his salary will increase at a steady rate of 7% per annum until his retirement at age 60. If the discount rate is 11.5%, what is the PV of these future sal..
Constant Growth Valuation Crisp Cookware's common stock is expected to pay a dividend of $2.75 a share at the end of this year (D1 = $2.75); its beta is 1.15; the risk-free rate is 4.4%; and the market risk premium is 5%.
The stock of Uptown Men's Wear is expected to produce the following returns given the various states of the economy. What is the expected return on this stock? Probabilities: Recession:0.4 Normal:0.4 Boom:0.2 Returns: Recession:-11% Normal:12% Boom:2..
Comment on the following quote:"... agency problems do not mean that the corporate firm will not act in the best interest of shareholders, only that is costly to make it do so. However, agency problems can never be perfectly solved ..."
Giant Enterprises’ stock has a required return of 14.8%. The company, which plans to pay a dividend of $2.60 per share in the coming year, anticipates that its future dividends will increase at an annual rate consistent with that experienced over the..
Reliable Gearing currently is all-equity-financed. It has 23,000 shares of equity outstanding, selling at $100 a share. The firm is considering a capital restructuring. What will be the debt-to-equity ratio if it borrows $330,000? If earnings before ..
Calculate the number of shares in issue if the company where to pay the dividend and Calculate the number of shares in issue if the company where to repurchase its shares.
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