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Warner Cable Company needs to replace 5 vehicles in its 50 vehicle fleet. Warner is considering two different types of vehicles: a higher cost, higher gas mileage vehicle (Vehicle Type HC) or a lower cost, lower mileage vehicle (Vehicle Type LC). The maintenance costs for the vehicles are similar. The cost for Vehicle HC is $35,000 and the cost for Vehicle LC is $28,000. Vehicle HC gets an average of 43 miles per gallon, and Vehicle LC gets an average of 25 miles per gallon. Warner plans to finance the purchase over a 4 year period, and the vehicles should last 8 years. The resale value of the vehicles after 8 years is estimated to be 10% of the original purchase price. Assume the average cost per gallon of gas over the 8 year period is $4.20; also assume that each vehicle is driven the same number of miles over the 8 year period. 1. What is the monthly payment for each type of vehicle (use interest rate of 6%)? 2. What is the total purchase cost for each type of vehicle? 3. What is the estimated fuel cost if each vehicle is driven 5,000 miles annually? 4. What is the estimated fuel cost if each vehicle is driven 30,000 miles annually? 5. Which vehicle type should Warner purchase? Justify your answer. 6. Summarize this scenario.
You are analyzing the after-tax cost of debt for a firm. You know that the firm’s 12-year maturity, 9.10 percent semi-annual coupon bonds are selling at a price of $767.17. These bonds are the only debt outstanding for the firm. What is the current Y..
The Buyer of a Put option has the right to sell the underlying asset. If a Buyer of a Call Option on General Motors stock buyer exercises her option, GM is required to sell shares to her.
A healthcare executive is using multiple linear regression models to predict total revenues. She has decided to include both patient length of stay and insurance type in her model. Patient length of stay is measured in days. How many parameters shoul..
If a CMO has 3 tranches, A, B, and Z (an accrual tranche), as well as a residual class, answer the following question? If the prepayment on a pool of mortgages decreases from CPR 10% to CPR 5%, what would happen to the expected maturity of the A clas..
Assume that a primary care physician practice performs only physical examinations. However, there are three levels of examination I, II, and III that vary in depth and complexity. The total costs to run the practice, including a diagnostic laboratory..
Stephen and Chris are also looking at issuing preferred and common stock to further expand TechU's businesses. Instead of common stock, TechU is also looking at issuing preferred stock so Stephen Jobs can retain close ownership in the company. The pr..
A small shopping center is expected to produce net operating income of $23,880 in year 1. You expect NOI to increase by 4 percent per year over an expected holding period of seven years. Property value is expected to increase by 3 percent per year. T..
Felicia & Fred are considering the introduction of a new product line of jewelry featuring crystals imported from the Czech Republic. The manufacturing plant offers crystals in all colors, sizes, and shapes cut to the design specifications of their c..
A property produces a first-year net operating income of $24,000. Because of the long economic life of the building, the income is considered as a perpetuity that will grow by 2.5% per year. Using a discount rate of 9.5%, what is your estimate of the..
Rolston Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $27,000, and the company expects to sell 1,550 per year. The company currently sells 2,050 units of its existing model per year..
If you deposit $5,500 at the end of each of the next 15 years into an account paying 11.3 percent interest, how much money will you have in the account in 15 years? How much will you have if you make deposits for 30 years?
A local government is about to run a lottery but does not want to be involved in the payoff if a winner picks an annuity payoff. The government contracts with a trust to pay the lump-sum payout to the trust and have the trust (probably a local ban..
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