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The Perez Company has the opportunity to invest one of two mutually exclusive machines that will produce a product it will need for the forseeable future. Machine A costs $11 million but realizes after-tax inflows of $5 million per year for 4 years. After 4 years the machine must be replaced. Machine B costs $13 million and realizes after-tax inflowa of 3.5 million per year for 8 years after which it must be replaces. Assume that machine prices are not expected to rise because inflation will be offset by cheaper components used in machines. The cost of capital is 14%.
a.) By how much would the value of the company increase if it accepted the better machine? Enter your answer in millions. For example, an answer of 1.2 million should be entered as 1.2 million not 1,200,000. Round your answer to two decimal places.
What is the Equivalent annual annuity for each machine? Round your answer to two decimal places
There are a number if large projects to evaluate. What criteria are you most likely to use to evaluate these projects and why? What would each criterion tell you? Determine at least one primary and one secondary method.
Deployment Specialists pays a current (annual) dividend of $1 and is expected to grow at 20% for two years and then at 3% thereafter. If the required return for Deployment Specialists is 9.0%, what is the intrinsic value of Deployment Specialists ..
Assume that you just won the state lottery. Your prize can be taken either in form of $40,000 at the end of each of the next 25 years (i.e., $1 million over 25 years) or as a lump sum of $500,000 paid immediately.
What is the weighted average flotation cost if the company finances new assets using new debt, new shares of preferred stock, and Retained Earnings? Assume the company maintains the current capital structure.
What is the WACC of Startlight if it would like to finance a new investment project?
You've two job offers, one from a dominant-business firm and one from an unrelated diversified firm (suppose the beginning salaries are virtually identical). Which offer would they accept and why?
The company's stock has a beta of 1.2, the risk-free rate is 7.5%, and the market risk premium is 4%. What is your estimate of the stock's current price?
Explain briefly why operational risk is important. Though the cost of implementing a new operational risk management system is expensive, determine why it could also improve the efficiency.
For those Assignments in this course that require you to perform calculations you must: Create an Excel spreadsheet containing the information provided. Template in Word is provided. Show all your work.
If the future value of an ordinary, 8 year annuity is $5,800 and interest rates are 8.0 percent, what is the future value of the same annuity due?
Lane, Inc., has an issue of preferred stock outstanding that pays a dividend of $4.75 dividend every year in perpetuity. If the issue currently sells for $93, what is the required return?
Discuss on to issue of new debt and break even analysis and what does it imply regarding whether or not the firm should go ahead with the new debt issue
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