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Vandelay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,600,000 and will last for six years. Variable costs are 35 percent of sales, and fixed costs are $195,000 per year. Machine B costs $5,200,000 and will last for nine years. Variable costs for this machine are 30 percent of sales and fixed costs are $230,000 per year. The sales for each machine will be $10 million per year. The required return is 10 percent, and the tax rate is 35 percent. Both machines will be depreciated on a straight-line basis. If the company plans to replace the machine when it wears out on a perpetual basis, which machine should it choose?
Assume that the bonds of highly leveraged ByHy Corporation currently have a yield to maturity of 8% and are due to mature in 1 year. Meanwhile, assume that 1 year Treasury securities are yielding 1%. Also assume that investors expect that there is a ..
The following three defense stocks are to be combined into a stock index in January 2013 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance): Suppose that Douglas McDonnell shareholders approve ..
The market price of a share of common stock at the time of issuance was $19.50, while the market price of a preferred share of stock at the time of issuance was $32. The company paid $12.50 for its treasury stock. Fill in the missing stockholders' eq..
What are the various kinds of budgets? Please explain each
Based on the following data, would Beth and roger Simmons receive a refund or owe additional taxes?
A homeowner can obtain a $250,000, 30-year fixed-rate mortgage at a rate of 6.0 percent with zero points or at a rate of 5.5 percent with 2.25 points. If you will keep the mortgage for 30 years, what is the net present value of paying the points (to ..
We have explored different capital structures. It is noted that initially, leverage can be the least expensive form of capital. However, if potential lenders feel a firm is overly leveraged, they may charge a punitive rate, or refuse to lend all toge..
Phil's Carvings, Inc. wants to have a weighted average cost of capital of 8.7 percent. The firm has an aftertax cost of debt of 5.3 percent and a cost of equity of 10.6 percent. What debt-equity ratio is needed for the firm to achieve their targeted ..
Municipal bonds are usually tax-free. Since investor’s car about after-tax return on their investment, these bonds have higher yield than bonds whose interest rate payments are taxable. Investors demand compensation for default risk in the form of ri..
A company enters into a total return swap where it receives the return on a corporate bond paying a coupon of 5% and pays LIBOR. Explain the difference between this and a regular swap where 5% is exchanged for LIBOR. Please explain in detail
Using only.gov Websites report the current GDP, the current Federal deficit, the current Federal debt, the bottom line of the current (last) budget approved by Congress (surplus or shortage). Note that the fiscal year for the federal government is Oc..
The management of Kobler Corporation is investigating an investment in equipment that would have a useful life of 5 years. The company uses a discount rate of 10% in its capital budgeting. Ignoring any salvage value, to the nearest whole dollar how l..
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