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Johnny’s Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $31,000 and will be depreciated according to the 3-year MACRS schedule. It will be sold for scrap metal after 3 years for $7,750. The grill will have no effect on revenues but will save Johnny’s $15,500 in energy expenses. The tax rate is 40%. Use the MACRS depreciation schedule.
a) What are the operating cash flows in each year? (Year 1, 2, and 3)
b) What are the total cash flows in each year? (Time 0, 1, 2, and 3)
The firm manufactures a global positioning system (GPS) that sells for $2,000, with cost of goods sold (hardware 30% and software 70%) of 55% of sales.
Hooper Printing Inc. has bonds outstanding with 19 years left to maturity. The bonds have an 7% annual coupon rate and were issued 1 year ago at their par value of $1,000. However, due to changes in interest rates, the bond's market price has fallen ..
The fair rate of return on similar debentures is 14% before tax. Calculate the present value of the capital portion of the debenture.
Ghost Rider Corporation has bonds on the market with 16 years to maturity, a YTM of 7 percent, and a current price of $968. What must the coupon rate be on the company’s bonds?
What is not a pitfall of the IRR rule? It can be biased against large scaled projects, compared to the NPV rule. Sometime multiple solutions or no solution
Apply one (1) of the following economic concepts (supply, demand, market structures, elasticity, costs of production, GDP, Unemployment, inflation, aggregate demand, and aggregate supply) to the key points that you highlighted in Question 1.
Genetic Insights Co. purchases an asset for $19,193. This asset qualifies as a seven-year recovery asset under MACRS. The seven-year fixed depreciation percentages for years 1, 2, 3, 4, 5, and 6 are 14.29%, 24.49%, 17.49%, 12.49%, 8.93%, and 8.93%, r..
A fully amortizing mortgage loan is made for $100,000 at 5 percent interest for 25 years. Payments are to be made monthly.
You purchased one EAW, Inc. 6 percent coupon bond one year ago for $1,020. The bond makes annual payments and matures four years from now. You sell the bond today when the required return is 5 percent. The inflation rate was 2.8 percent over the past..
Far Side Corporation is expected to pay the following dividends over the next four years: $10, $8, $6, and $4. Afterward, the company pledges to maintain a constant 4 percent growth rate in dividends forever. If the required return on the stock is 14..
The Black Bear Company just paid an annual dividend of $5.98. If you expect a constant growth of 8%, and you have a required rate of return of 12.65%. What is the current stock price accoridng to the constant growth divident module (Gordon module)?
At the end of the growth phase the following financial ratio becomes more important to analyze
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