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The company is choosing between machine A and B (they are mutually exclusive and the company can only pick one). The initial cost of machine A is $1,400,000 and it will last for 7 years before it needs to be replaced. The cost of operating machine A each year is $150,000. The initial cost of Machine B is $800,000 and it will last for 5 years before it needs to be replaced. The cost of operating machine B is $230,000 in cash flow per year. If the required rate of return is 10%, (a) Calculate the 7 year and 5 year annuity factors at 10% annual interest. (b) Using the annuity factors, find the PV of Machine A and Machine B including all costs (initial + operating). (c) Which machine is a better choice for the company after considering the different lives of the projects? (Note: be sure to use the equivalent annual annuity method)
Assume that your father is now 50 years old, that he plans to retire in 10 years, and that he expects to live for 25 years after he retires, that is, until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he..
As a consultant to Basso Inc., you have been provided with the following data: D1 = $0.67; P0 = $27.50; and g = 8.00% (constant). What is the cost of common from reinvested earnings based on the DCF approach?
Firm S is considering adding a robotic device to its production line. The device base price is $1,038,000.00, and it would cost another $21,500.00 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates a..
Explain the difference between observed market prices and intrinsic (unobservable) prices. Explain what makes a market “fair” Define operational efficiency. Define informational efficiency (speed of info, accuracy of info, and accuracy of response to..
LaMont works for a company in downtown Chicago. The firm encourages employees to use public transportation (to save the environment) by providing them with transit passes at a cost of $296 per month.
What is the NPV of a project that costs $150,000 and provides cash inflows of $20,000 annually for seven years and the discount rate is 10 percent? Please show your work.
Krystal Magee invested $150,000 17 months ago. Currently the investment is worth $170,000. Krystal knows that the investment paid interest monthly, but she does not know what yield on her investment. What is Krystal's annual percentage return (APR) a..
What is the future value of $1,270 in 16 years assuming an interest rate of 9 percent compounded semi annually? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations.
Suppose that the annual interest rate is 2.0 percent in the United States and 4 percent in Germany, and that the spot exchange rate is $1.60/€ and the forward exchange rate, with one-year maturity, is $1.58/€. Assume that an arbitrager can borrow up ..
ABC Co. and XYZ Co. are identical firms in all respects except for their capital structure. ABC is all equity financed with $625,000 in stock. XYZ uses both stock and perpetual debt; its stock is worth $312,500 and the interest rate on its debt is 5...
Potential applicants of the break-even model includes : a. optimizing the cash-marketable securities possession of a firm b. replacement for time-adjustment capital budgeting techniques c. pricing policy d. all of the above
Three days later the trader vanishes and you find that $10 million of his account is now missing. What kind of risks does this pose to the firm?
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