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Dirt Bikes’s management would like to analyze the return on its investment in its employee training and skills tracking system described in Chapter 13. The system runs on the human resources specialists’ PCs using PC database software. Because the entire corporate administrative staff recently received new desktop PC systems with database and other productivity software, there are no additional hardware and software purchase costs. The main costs include the initial cost of designing and implementing the database (business staff cost of $5,000; information systems staff cost of $15,000), gathering and adding employee skills and training data to the database ($5,500 initial data conversion cost plus $1,000 annual data entry costs), and ongoing maintenance and support ($3,000 annually). Human resources staff members believe the new application could save each of them two hours of work per week. (Their annual salaries are $37,000 and $42,000 each.) The company would also save about $11,000 annually in employee recruiting costs because it would be able to fill many vacant positions with existing employees, thereby reducing its costs for recruiting outside the company. The system would not be installed until the end of 2014 and would return benefits from 2015 to 2019. Prepare a report for management analyzing the return on the investment for this system over a five-year period using the following capital budgeting models: net present value, return on investment (ROI), internal rate of return (IRR), and payback method. Assume a 5 percent interest rate for your net present value calculations. Use spreadsheet software for your calculations.
You recently purchased a new stereo system for $15,000 by cooperating to pay equal annual payments for 3 years. If the interest rate on your loan is 6 percent, how much is each payment
For financial leverage other than fixed vs variable cost what other factors should be considered? Is it necessarily the case that a company that is comfortable with high operating leverage should be equally at ease with high financial leverage? Will ..
A firm plans to purchase a $50,000 asset that will be depreciated straight-line over a 5-year life to a zero salvage value. What is the present value of the resulting benefit from depreciation (the depreciation “tax shield”) if the tax rate is 35% an..
You short sold 800 shares of stock at a price of $45 and an initial margin of 55 percent. If the maintenance margin is 30 percent, at what share price will you receive a margin call? What is your account equity at this stock price?
In its closing financial statements for its first year in business, ABC Enterprises, had cash of $242, accounts receivable of $850, inventory of $820, net fixed assets of $3,408, accounts payable of $700, short-term notes payable of $740, long-term l..
Cooling Tools, Inc. is currently producing 1,118 of small refrigerators per month but the company’s CEO plans to increase production at a rate of 7.10 percent per month until the firm is producing 5,273 of refrigerators per month. How many months wil..
If all capital outlays are funded from retained earnings and new borrowings and if Clynne follows a residual dividend policy, what capital outlays are planned for the coming year?
You are due to receive ten annual payment of $1500 each,the first payment to be received 5 years from now. You can invest each of these payments into an account that offers a 4 percent, semi-annual interest rate. Compute the present value ( t=0) of t..
Consider the following information on Stocks I and II: Rate of Return if State Occurs State of Economy / Probability of State of Economy / Stock I / Stock II. The standard deviation on Stock I's expected return Is ? percent and the Stock I beta is ?...
Find the duration of a 6% coupon bond making annual coupon payments if it has three years until maturity and a yield to maturity of 6%. What is the duration if the yield to maturity is 10%?
An initial cost of 1 million, an annual cost of 40,000 starting the end of year 4 and runing through the end of year 10, and a receipt of 200,000 at the end of the years 1thru3 and 5 thru 10. The MARR is 10%. Draw the cash flow diagram for this proje..
You purchased one bond for $80. One year later you sold the bond for $83.25, and the coupon payment was $12. What is the RET, or the return from holding the bond over the one-year period?
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