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Anchor Ltd paid $15,000 last quarter for a feasibility study regarding the demand for motor - boat replacement parts which would require the purchase of a new metal - shaping machine. Today, they wish to conduct an analysis of the proposed project. The machine costs $250,000 and will operate for five years. However, the tax rules allow the machine to be depreciated to zero over a four - year life. The machine is expected to produce sales of $135,000 annually for the five years . Anchor has already agreed to sell the machine in five years’ time to an unrelated firm for $80,0 00. The project will result in a $ 3 5,000 increase in accounts receivable and require an increase in inventory levels by $ 2 0,000 to $95,000 . Anchor has negotiated with its bank to borrow $180,000 to help pay for the project . Loan repayments are $48,000 eac h year for five years. If Anchor buy s the machine they will be able to use some equipment that they currently own. This is part of the driving force in the decision making as it enables the company to save money in not buying additional new equipment. Thi s equipment was bought for $120,000 six years ago and could be sold today for $63,000. This equipment has been written off for tax purposes and would be worthless in five years’ time. If the company tax rate is 30% and the appropriate discount rate is 19.5 %, should Anchor buy the new machine?
The spot price of an investment asset that provides no income is $30 and the risk-free rate for all maturities (with continuous compounding) is 10%. Show all work. What, to the nearest cent, is the three-year forward price? Assume that the asset prov..
You have been asked by the president of your company to evaluate the proposed acquisition of a new specialpurpose truck. The truck's basic price is $50,000, and it will cost another $10,000 to modify it for special use by your firm. What is the net i..
Suppose that a corporate bond with a Baa credit rating and five years to maturity has a yield to maturity of 8 percent. Suppose that the government of the city of Udwellum, which has a Baa credit rating, issues a bond with the dame time to maturity i..
You are determining whether your company should undertake a new project and have calculated the NPV of the project using the WACC method when the CFO, a former accountant, notices that you did not use the interest payments in calculating the cash flo..
Provide two reasons for a company to lease some type of capital equipment, rather than buying it. Provide three reasons for a company to buy some capital equipment, rather than lease it.
The employs credit union at State University is planning the allocation of funds for the coming year. The credit union makes four types of loans to its members. In addition, the credit union inverts in risk-free securities to stabilize income. Rish-f..
the directors of uw plc are keen to attract internal investment to support the expansion of sales.the company buys raw
You want to buy a new sports coupe for $75,700, and the finance office at the dealership has quoted you a loan with an APR of 8.1 percent for 36 months to buy the car. What will your monthly payments be? What is the effective annual rate on this loan..
What is the market value of equity, or market capitalization? How many shares of stock does Hewlett-Packard have outstanding? What is the most recent annual dividend? What is the beta for Hewlett- Packard?
Following are the average yield-to-maturities for various A-rated corporate bonds issued by energy companies in the US. You want to estimate the yield-to-maturity on a 7 years-to-maturity bond. Given the yield-to-maturities below, compute the estimat..
An asset has a 15% chance of a -10% return, a 25% chance of a 0% return, a 25% chance of a 5% returns, and a 35% chance of a 20% return. What is the expected rate of return of this asset?
Lycan, Inc., has 8.8 percent coupon bonds on the market that have 7 years left to maturity. The bonds make annual payments. If the YTM on these bonds is 10.8 percent, what is the current bond price?
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