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Fred and Frieda have always wanted to enter the blueberry business. They locate a 50- acre piece of hillside in Maine that is covered with blueberry bushes. They figure that the annual yield from the bushes will be 200 crates. Each crate is estimated to sell for $400 for the next 10 years. This price is expected to rise to $500 per crate for all sales from years 11 through 20. In order to get started, Fred and Frieda must pay $150,000 for the land plus $20,000 for packing equipment. The packing equipment will be depreciated on a straight-line basis to a zero estimated salvage value at the end of 20 years. Fred and Frieda believe that at the end of 20 years, they will want to retire to Florida and sell their property. Annual operating expenses, including salaries to Fred and Frieda and exclusive of depreciation, are estimated to be $50,000 per year for the first 10 years and $60,000 thereafter. The land is expected to appreciate in value at a rate of 5 percent per year. The couple’s marginal tax rate is 30 percent for both ordinary income and capia. If the couple requires at least a 13 percent return on their investment, should they enter the blueberry business? b. Assume that the land can be sold for only $50,000 at the end of 20 years (a capital loss of $100,000). Should the couple invest in the land and blueberry business? (Assume that the couple may claim the full amount of their capital loss in the year it occurs year 20).tal gains and losses.
What is the Journal Entry? The office manager in San Diego ordered $350 of office (operating) supplies from Staples. While on the way back from a delivery, one of the warehouse staff picked up the Staples order and brought it to GBI’s office.
Your firm’s discount rate is 10 percent. You are considering the purchase of Truck A or Truck B. Truck A costs $100, has a useful life of 3 years, no salvage value and maintenance costs of $10 per year. Truck B costs $80, has a useful life of 2 years..
Six years ago you placed $ 250 in a savings account which is now worth $ 1,040.28. When you put the funds into the account, you were told it would pay 24 percent interest. You expected to find the account worth $ 908.80. What compounding did you thin..
Consider a firm where the effort undertaken by managers can affect cash flows in the next period. For simplicity, assume managers either exert low effort or high effort. Assume that investors cannot observe effort. Assume that, with low effort, the f..
The Wall Street Journal reports that the yield on a nine-month Treasury bond is 2.3 percent, the yield on a three-year Treasury bond is 2.9 percent, and the yield on a 10-year Treasury bond is 4.3 percent. Although no liquidity premium is associated ..
In order to fund her retirement, Michele requires a portfolio with an expected return of 0.11 per year over the next 30 years. She has decided to invest in Stocks 1, 2, and 3, with 25 percent in Stock 1, 50 percent in Stock 2, and 25 percent in Stock..
What is the beta of a portfolio comprised of the following securities? Stock Amount Invested Security Beta
Lewis Finance Investor Group, Inc. is considering a new project, which would include opening a college textbook store approximately 2 miles north of campus on Rt. 53. The initial investment (outflow) will include inventory, land and a building. What ..
There are questions on Financial Management and Markets. Like What is the default risk premium on corporate bonds?
Suppose the call money rate is 4.5 percent, and you pay a spread of 2.5 percent over that. You buy 600 shares of stock at $78 per share. You put up $18,000. One year later, the stock is selling for $86 per share and you close out your position. What ..
You currently owe $18,000 on a home mortgage loan at 9.5 percent interest. If you make monthly payments of $576.59 per month, how long will it take you to fully repay the loan?
The cost of the truck is $18,000 and he is approved for an 8% loan but can choose to finance the loan for either 48 or 60 months. What will be the additional cost if he chooses the 60 month term instead of 48 months? You can assume that he can afford..
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