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Gluon Inc. is considering the purchase of a new high pressure glueball. It can purchase the glueball for $80,000 and sell its old low-pressure glueball, which is fully depreciated, for $14,000. The new equipment has a 10-year useful life and will save $18,000 a year in expenses. The opportunity cost of capital is 10%, and the firm’s tax rate is 40%. What is the equivalent annual savings from the purchase if Gluon uses straight-line depreciation? Assume the new machine will have no salvage value. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Equivalent annual savings $
A portfolio of derivatives on a stock has a delta of 2400 and a gamma of –100. An option on the stock with a delta of 0.6 and a gamma of 0.04 can be traded. What position in the option creates a portfolio that is gamma neutral? Give size of position ..
A call option on Jupiter Motors stock with an exercise price of $85 and one-year expiration is selling at $3. A put option on Jupiter stock with an exercise price of $85 and one-year expiration is selling at $1.5. If the risk-free rate is 9% and Jupi..
You are the Portfolio Manager and you have decided to invest in a bond with a 10 percent coupon and a 4-year maturity currently priced at par with interest paid annually. You decided to purchase the bond for your portfolio, but now interest rates hav..
David was unemployed and suffered from a number of disabilities. To try to get him back into the workforce, Sam arranged for David to paint his (Sam’s) house. The arrangement was initially to be on a trial basis in order to determine whether David wa..
Calculate the current elasticity of the straddle.
Nick's Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $3 at the end of each year. The preferred sells for $60 a share. What is the stock's required rate of return (assume the market is in equilibrium with the required..
A $1000 bond with a coupon rate of 6.2% paid semi annually has five year to maturity and a yield to maturity of 7.5%. If interest rates rise and yield to maturity increases to 7.8%, what will happen to the price of the bond? A. fall by $11.83 B. rise..
calculate the balance sheet-based accruals and cash flow-based accruals ratios. Analyze the ratios and other information,of Wal -Mart and write an assessment of financial reporting quality.
Writing Put Options A put option on Indiana stock specifies an exercise price of $23. - Assume the option will not be exercised until maturity, if at all. Complete the given table.
Compute the cost of capital for the firm for the following: a. A bond that has a $1,000.00 par value (face value) and a contract or coupon interest rate of 11.6 percent. Interest payments are $58.00 and are paid semiannually. The after-tax cost of de..
Assume that the risk-free rate is 5% and the market risk premium is 6%. What is the required return for the overall stock market?
Cost of Common Equity and WACC Patton Paints Corporation has a target capital structure of 30% debt and 70% common equity, with no preferred stock. Its before-tax cost of debt is 11% and its marginal tax rate is 40%. The current stock price is P0 = $..
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