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Suppose your bottling plant is in need of a new bottle capper. You are considering two different capping machines that will perform equally well, but have different expected lives. The more expensive one costs $30,000 to buy, requires the payment of $3,000 per year for maintenance and operation expenses, and will last for 5 years. The cheaper model costs only $22,000, requires operating and maintenance costs of $4,000 per year, and lasts for only 3 years. Regardless of which machine you select, you intend to replace it at the end of its life with an identical machine with identical costs and operating performance characteristics. Because there is not a market for used cappers, there will be no salvage value associated with either machine. Let’s also assume that the discount rate on both of these machines is 8 percent.
For each of the following 4-groups of companies, state whether you would expect them to distribute a relatively high or low proportion of current earnings and whether you would expect them to have a relatively high or low price earnings ratio.
Assume that earnings and dividends are expected to grow at 7.5% in perpetuity. What rate of return are investors expecting?
If the manufacturer sells directly to a retailer who then adds a set margin of 40 percent based on selling price, determine the retail price charged to consumers.
what will happen to each of the stocks required rates of return? Will one go up more than the other? Will they stay the same? Why?
Your estimate of the market risk premium is 7%. The risk-free rate of return is 3.0% and General Motors has a beta of 1.3. According to the Capital Asset Pricing Model (CAPM), what is General Motor's expected return?
The costs associated with issuing securities to the public can be high. Some types of securities have greater expenses associated with them than others. Which of the following is the most costly security to issue?
Garrett Corporation has been going through a difficult financial period. Over the past three year, its stock price has dropped from $50 to $18 per share. Throughout this downturn, Garrett has managed to pay a $1 dividend every year.
Repeat the process but assume that the second share was purchased for $110 instead of $130. Why do the rates of return differ?
A client has recently deposited $20,000 in savings account which pays 8% interest compounded annually. How much may he withdraw at end of each year?
Discuss some of the implications of overpaying for an acquired company?
The minimum monthly payment for Conrad's credit card is 2% of his balance or $20, whichever is higher. If Conrad's balance at the end of his last billing cycle was $760, what is his minimum monthly payment?
what is the average inventory based on the EOQ and existing safety stock?
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