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Suppose a company has hired you to estimate the cash flows arising from a proposed capital project by replacing old equipment with a $0 market value and a book value of $6000, and you have been handed the relevant data below. The project being considered has a 5-year tax life, and at the end of year 5 the asset will be worthless (i.e. salvage value =0). The CFO suggests that you depreciate the asset by using the straight-line method over the 5 year life of the project. Revenues and other operating costs are as noted below, and will be constant over the period. Equipment cost: $150,000; Book value of old equipment: $6000 Delivery and installation cost of equipment and remove old equipment: $50,000; Straight-line depreciation rate: 20% (5-year); Sales revenue each year: $100,000 Operating costs (excluding depreciation): $30,000; Tax rate: 40% 10a. What are annual cash flows for the next five years? Hint: find CF0 to CF5 10b. Suppose CFO will borrow 50% of capital from a bank with 10% interest, and 50% of capital through equity with 22% of require rate of return. What is the cost of capital for this project? 10c. What is the net present value of this project and should you convince the CFO to accept or reject the new equipment? 10d. If the firm's CEO want to use IRR to value the project, will IRR has the same suggestion as NPV? (please find IRR, and explain what it means)
You are going to receive $200,000 in 50 years. What is the difference in present value between using a discount rate of 15 percent versus using 5 percent?
Preferred shares issued by the CAT carry dividend of 1.25 per share. How do I compute the value of preferred share if the required return on the shares is 14.0%?
Computation of Net Present Values and Internal Rate of Returns and Cross Over rates to select among mutually exclusive projects based on cash flows and discounting rates
What is the price-earnings ratio of the company? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
A and B Beverages expects to earn $50,000 next year after taxes. Sales will be $375,000.
Analysis was forecasting fiscal 2003 and 2004 earnings per share for Cisco systems of $.54 and $.61 respectively. Cisco's shares traded at $15 at the time. Suppose the long-term growth rate will be at 4%.
Which investment has the least amount of risk?
Assume you have $100,000 and want to invest money. How would you proceed to find a good company to put your money in?
What are the most important risks for the audit of the acquisition and payment cycles in the automotive industry?
The M&M Company wishes to sell 100,000 units of its new product at $15 apiece. The variable cost is $12. The company has an operating expense of $200,000.
Pete Moran purchased a Dell Laptop Computer priced at $699. He put down 30 percent. Determine the amount of down payment;
Computation of equity capital contribution and Before Tax Cash Flow and After Tax Cash Flow and What is the Before-tax Cash Flow to the equity investor
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