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A new machine costing $100,000 is expected to save the McKaig Brick Company $15,000 per year for 12 years before depreciation and taxes. The machine will be depreciated on a straight-line basis for a 12-year period to an estimated salvage value of $0.
The firm's marginal tax rate is 40 percent. What are the annual net cash flows associated with the purchase of this machine? Also compute the net investment (NINV) for this project.
A corporations has 10,000,000 shares of stock outstanding at a price of $60 per share. They just paid a dividend of $3 and the dividend is expected to grow by 6% per year forever. The stock has a beta of 1.2, the current risk free rate is 3%, and the..
Suppose the current price is $50 per share. The stock price might go up to $80 per share or go down to $20 per share. Can you derive the payoff of purchasing an European stock PUT option with exercise price $50 for one share? Come up with a risk free..
Consider the expectations theory (of the term structure) with a term premium. What is the interest rate on a 5-year bond today if the term premium for a 5-year bond is 2% and 1-year interest rates are expected to remain constant at their current leve..
What factor would you use to determine the future lump sum amount that could be withdrawn from a bank as a result of depositing a fixed instalment amount for "n" years? State its name and show its standard notation.
Holtzman Clothiers' stock currently sells for $28 a share. It just paid a dividend of $2 a share (i.e., D0 = $2). The dividend is expected to grow at a constant rate of 8% a year. What stock price is expected 1 year from now? What is the required rat..
Ralph's Machine shop purchased a computer used in tuning engines. To finance the purchase, the company borrowed 12900 at 3% compounded annually. To repay the loan, equal monthly payments are made over two years, with the first payment due one year af..
An investor ponders various allocations to the optimal risky portfolio and risk-free T-bills to construct his complete portfolio. Predict two ways that the Sharpe ratio of the complete portfolio could be affected by this choice. Support your predicti..
Lakonishok Equipment has an investment opportunity in Europe. The project costs €12 million and is expected to produce cash flows of €1.9 million in Year 1, €2.3 million in Year 2, and €3.4 million in Year 3. The current spot exchange rate is $1.34 /..
Kristin Malone opened Kristin's Maids Cleaning Service on July 1, 2017. During July, the company completed the following transactions. July 1 Stockholders invested $14,000 cash in the business in exchange for common stock. 31 Paid gasoline for the mo..
Charles Hess is saving for a new tractor. The cost is $75,000. How much must he invest at a 4% annual interest rate to have $75,000 in six years? Round to the nearest dollar.
For an investor seeking a low-risk investment maturing in five years, do the bonds issued twenty-five years ago with a much higher coupon rate provide a more attractive return than the new five-year bonds?
Assume that initial margin requirement is 60% of the total investment and a maintenance margin requirement is 30% of the total investment for long position and 35% of the total investment for the short position. Answer the following questions (a) & (..
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