Reference no: EM131346425
A company is considering purchasing a new computerized management information system. The estimated initial investment costs of this system are (1) PCs and printers: $71,000, (2) System installation: $7,000, (3) Testing: $6,000. This system is classified as a 5-year MACRS class. This system is expected to last 6 years, which is the project duration. At the end of 6 years, the system will be sold for $1000.
During the first year of the project, company engineers must spend time to customize software for this project at a cost of $20,000. There will also be some additional operating and maintenance costs of $12,000 annually for the duration of the project.
This new system will provide savings by eliminating the waste of manually double-checking data and better tracking of billing – the savings is estimated to be $52,000 annually for the duration of the project.
The company will borrow all the money for the initial investment from a local bank. The bank interest rate is 11% and the company will pay it off over the first 5 years of the project with equal annual payments.
The company’s marginal tax rate over the next 6 years is 39% and this project is not expected to change that rate. The company’s minimum attractive rate of return is 18%.
Using a present worth analysis of the cash flows from this project, is this project acceptable to the company?
|
A firm is considering two different capital structures
: A firm is considering two different capital structures. The first option is an all-equity firm with 40,000 shares of stock. The second option is 28,000 shares of stock plus some debt. Ignoring taxes, the break-even level of earnings before interest a..
|
|
Willing to pay for share of jones preferred stock today
: Lunch Trucks, Inc. just paid a dividend of $2.00. Dividends are expected to grow at a rate of 3% per year from here on out. If the risk-free rate is 2%, the MRP is 8%, what is the most that you should be willing to pay for a share of this stock today..
|
|
Purchased the bond today and held it until maturity
: Fresh Fruit, Inc. has a $1,000 par value bond that is currently selling for $1,005. It has an annual coupon rate of 9.34 percent, paid semiannually, and has 29-years remaining until maturity. What would the annual yield to maturity be on the bond if ..
|
|
What is after-tax cost of capital for debt financing
: Great Seneca Inc. sells $100 million worth of 22-year to maturity 13.44% annual coupon bonds. The net proceeds (proceeds after flotation costs) are $989 for each $1,000 bond. The firm's marginal tax rate is 30%. What is the after-tax cost of capital ..
|
|
Using present worth analysis of cash flows from project
: A company is considering purchasing a new computerized management information system. During the first year of the project, company engineers must spend time to customize software for this project at a cost of $20,000. There will also be some additio..
|
|
Interpretation based on coefficient of determination
: A career counselor wishes to estimate, based on the following sample data, the mean increase in the annual salary of people (in thousands of dollars) per additional year of education pursued. Years, x 12 13 14 15 16 17 Salary, y 25 31 43 52 58 60 Whi..
|
|
Which is the coefficient of determination
: A career counselor wishes to estimate, based on the following sample data, the mean increase in the annual salary of people (in thousands of dollars) per additional year of education pursued. Years, x 12 13 14 15 16 17 Salary, y 25 31 43 52 58 60 Usi..
|
|
Is the taxable income positive or negative
: Compute the cash flow, tax flow, and after cash flow for the following real estate investment property. ompute Tax Flow (Taxable Income or Less on this property). Is the taxable Income Positive or Negative?
|
|
Find the net advantage to leasing showing all steps
: LEASE OR BUY: A firm needs assembly line equipment for a new factory and is deciding if they should lease or buy the equipment. The project is expected to last 5 years, and the firm has a tax rate of 40 percent. Find the net advantage to leasing (NAL..
|