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Replacement and Retention Decisions A lumber company that cuts fine woods for cabinetry is evaluating whether it should retain the current bleaching system or replace it with a new one. The relevant costs for each system are known or estimated. Use an interest rate of 10% per year to (a) perform the replacement analysis and (b) determine the minimum resale price needed to make the challenger replacement choice now. Is this a reasonable amount to expect for the current system? Current New System System First cost 7 years ago, $ –450,000 First cost, $ –700,000 Remaining life, years 5 10 Current market value, $ 50,000 AOC, $ per year –160,000 –150,000 Future salvage, $ 0 50,000
In 2013, the Lissa Company paid dividends of $10,000,000 on after-tax income (cash flow) of $25,000,000. Capital budget projects totaled $15,000,000 in 2013. 2013 was a normal year for earnings, dividends, and capital budgets. Calculate Lissa's total..
A 25-year maturity bond with face value of $1,000 makes annual coupon payments. What is the bond’s yield to maturity if the bond is selling for $940?
When Jamal graduated from college recently, his parents gave him $1,610 and told him to use it wisely. Jamal decided to use the money to start a retirement account. Calculate how much money Jamal will have in his IRA at the end of 10 years, assuming ..
Harrison Clothiers' stock currently sells for $20 a share. It just paid a dividend of $2 a share (that is, D0 = 2). The dividend is expected to grow at a constant rate of 6% a year. What stock price is expected 1 year from now?
A manufacturing company has fixed costs of $120,000 per month and variable costs of $6 per unit. Determine the break even quantity for each of these price points. Determine the markup as a percentage of the selling price when the cost is $7 and the s..
The annual risk-free rate is 6%. Find the price of a call option on the stock that has a strike price of $14 and that expires in 6 months.
Which one of the following stocks is correctly priced if the risk-free rate of return is 2.5 percent and the market risk premium is 7.80 percent? Stock Beta Expected Return A 0.73 8.61% B 1.47 13.90% C 1.39 13.34% D 1.04 10.53% E 0.96 9.84%
Capital Co. has a capital structure, based on current market values, that consists of 42 percent debt, 9 percent preferred stock, and 49 percent common stock.
A firm needs full use of $2,000,000 to purchase a new machine. A bank has agreed to loan at 9% discounted interest for 180 days. The bank requires a .25% compensating balance. The bank charges fees in advance of $300. How much will the firm need to b..
What is the beta of a portfolio whose expected return is 10% when the risk-free rate is 3% and the market risk premium is 5%?
You are offered an investment with returns of $ 1,184 in year 1, $ 3,447 in year 2, what is the Profitability Index of the investment?
You are considering a project which will provide annual cash inflows of $4,500, $5,700, and $8,000 at the end of each year for the next three years, respectively.- What is the present value of these cash flows, given a 9 percent discount rate?
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