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Taylor United is considering overhauling its equipment to meet increased demand for its product. The cost of equipment overhaul is $3.8 million, plus $200,000 in installation costs. The firm will depreciate the equipment modifications under MACRS using a five-year recovery period. Additional sales revenue from the overhaul should amount to $2.2 million per year, and additional operating expenses and other costs (excluding depreciation) will amount to 35 percent of the additional sales. The firm has an ordinary tax rate of 40 percent. Answer the following questions about Taylor United, for each of the next six years.
a. What additional earnings, before depreciation and taxes, will result from the overhaul?b. What additional earnings after taxes will result from the overhaul?c. What incremental operating cash flows will result from the overhaul?
Suppose two firms want to borrow money from a bank for a period of one year. Firm A has excellent credit, whereas Firm B's credit standing is such that it would pay. The firm's credit standing is prime + 2 percent. The current prime rate is 6.80 perc..
Poole Company has collected the following data after its first year of sales. Net sales were $1,600,000 on 100,000 units; selling expenses $240,000; direct materials $511,000; direct labor $285,000;
Suppose a ten-year, $1,000 bond with an 8.1% coupon rate and semi-annual coupons is trading for $1,034.69
Liz Rogers just closed a $10,000 business loan that is to be repaid in three equal, yearly, end-of-year payments. The interest rate on the loan is 13 percent.
Explain how these estimates would be used to calculate an abnormal return.
Why might prices not be strong form effcient? List two reasons and briefly describe.
Describe how the appreciation of Japanese yen against the U.S. dollar would affect the return to U.S. firm that borrowed Japanese yen and employed the proceeds for the U.S. project.
Which project will the stockholders prefer and which project maximizes the value of the firm? Why are these answers different?
Calculate the Du Pont ratio analysis
Narrate the merits of opening more stores in same market area and Divide your answer into sections
On the one hand they welcome the order because they currently have excess capacity. Also, this is the company's first international order. On the other hand, the company in China is willing to pay only $130 per unit.
Using the required rate of return calculated in part (a) and the Discounted Cash Flow Model, compute the intrinsic value of a share of Hewlett-Packard Stock. What assumptions, if any, was it necessary to make?
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