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In evaluating projects, Buford Engineers (BE) uses a discount rate of 15% for a before-tax analysis. One year ago, a robotic transfer machine was installed at a cost of $38,000. At the time, a 10-year life was estimated, but the machine has had a down-time rate of 28%, which is unacceptably high. A $12,000 upgrade should fix the problem, or a labor-intensive process costing $3500 in direct labor per year can be substituted. The plant estimates indirect plant expenses at 60% of direct labor costs, and it allocates front-office overhead at 40% of plant expenses (direct and indirect). The robot has a value in other uses of $15,000. What is the equivalent annual cost for upgrading? For switching to the labor-intensive process?
You buy a share of stock, write a one-year call option with a strike price X = $28, and buy a one-year put option with a strike price X = $28. Your net initial cost to establish the entire portfolio is $26.70. What must be the risk-free interest rate..
The treasurer of a major U.S. firm has $34 million to invest for three months. The interest rate in the United States is 0.22 percent per month. The interest rate in Great Britain is 0.28 percent per month. The spot exchange rate is 0.633, and the th..
Match each of the following behaviors with the appropriate bais, as discussed in the chapter. Wanda owns shares in happy Clan Oil Exploration, but due to recent events, the share price is down 30 percent from when she bought. Drew doesn't believe his..
International Fisher Effect. If a U.S. firm believes that the international Fisher effect holds, what are the implications regarding a strategy of continually attempting to generate high returns from investing in currencies with high interest rates?
Should the borrower refinance if he plans to own the property for the remaining loan term? Assume that the investor borrows only an amount equal to the outstanding balance of the loan.
A company has expected sales for January through April of $9,800, $9,500, $13,800, and $9,500, respectively. Assume each month has 30 days and the accounts receivable period is 38 days. How much does the company expect to collect in the month of May?..
Patricia and Joe Payne are divorced. The divorce settlement stipulated that Joe pay $500 a month for their daughter Suzanne until she turns 18 in 4 years. Interest is 12% a year. How much must Joe set aside today to meet the settlement?
Suppose you know that a company’s stock currently sells for $54 per share and the required return on the stock is 9 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it’..
Andy wishes to sell a bond that has a face value of $1049. The bond bears an interest rate of 12.56% with bond interest payable quarterly. Three years ago, $1255 was paid for the bond. At least a 15.88% return (yield) on the investment is desired.
Find the future values of these ordinary annuities. Compounding occurs once a year. Round your answers to the nearest cent.
BetterPie Industries has 8 million shares of common stock outstanding, 6 million shares of preferred stock outstanding, and 25,000 bonds. Assume the common shares are selling for $47 per share, the preferred shares are selling for $24.50 per share, a..
Sooty Iron Works, Inc. has had declining sales and increasing expenses over the last decade and expects this trend to continue. As a result, the company predicts that earnings and dividends will decline indefinitely at a rate of 4 percent per year. S..
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