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A company wants to update their assets by buying some new machinery and selling some old equipment. The new machinery will cost $100,000 and will be depreciated using 3-year MACRS (33%, 45%, 15%, 7%). At the end of the third year, the machinery is expected to be sold for $10,000. The old equipment was bought three years ago for $60,000 and was being depreciated over four years using straight-line depreciation. It can be sold today for $10,000. If they do not buy the new machinery and replace the old equipment, then the old equipment is expected to be held for another three years at which point it will be worthless. Regardless of whether they buy the new machinery, Sales will be $500,000 for the next three years, but COGS will fall from 70% of Sales to 60% of Sales if they buy the new machinery. The tax rate is 40%. Balance Sheet Effects |-----------Depreciation Expenses------------| Today Year 1 Year 2 Year 3 End 1. Buy New Assets 2. Sell Old Assets Income Statement Effects Year 1 Year 2 Year 3 Net Sales -Net COGS -Net Depreciation = Net OEBT - Net Taxes = Net OEAT + Net Depreciation = Net Operating CF
1. What is the Net Investment (Initial Cash Outflow or CF0) for this project?
2. What is the Depreciation Expense in year one?
3. What is the Operating Cash Flow in year two for this project?
4. What is the after tax salvage value of selling the new machinery in three years?
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How much are each of the following cash flow streams worth today?
Big T Burgers and Fries Corp Pays an annual dividend rate of 11.00% on its preferred stock that currently returns 14.74% and has a par value of $100. What is the value of big t burgers and fries corps stock?
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Johnson purchases an asset for $15763. 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%, respectively. J..
In the context of corporate finance, what comes closest to the definition of equity?
Bond Yields. A bond with face value $1,000 has a current yield of 6% and a coupon rate of 8%. (LO6-1) a. If interest is paid annually, what is the bond’s price? b. Is the bond’s yield to maturity more or less than 8%?
Netscrape Communications does not currently pay a dividend. You expect the company to begin paying a $2.6 per share dividend in 15 years, and you expect dividends to grow perpetually at 3.6 percent per year thereafter. If the discount rate is 13 perc..
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