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The total cost for the new capital totals $718,000 with installation costs of $5,000. Inventories will increase by 6,500, accounts recieveable will increase by 4,000 and accounts payable will increase by 3500. The new capital is expected to be used for 5 years. The new item would be depreicated under MACRS using a 5-year recovery period. At the end of 5 years the machine can be sold for 95,000. The current, 4 year old machine can be sold for 112,000 before taxes and is being depreciated as a 7 year asset under MACRS. At the end of 5 years it is expected that this machine can be sold for 10,000. The new machine is expected to generate $380,000 in profits before depreciation and taxes for each of the next 5 years. The existing machine is expected to generate $190,000 in profits before depreciation and taxes for each of the next 5 years. The firm is subject to a 40% tax rate on both ordinary income and capital gains.
a) What is the net initial investment?
b) Show the project's operating cash flow statement for each year of operations. What is the expected non-operating terminal cash flow when the project is terminated at Year 5?
c) What is the projects NPV?
Assume that today is December 31, 2012, and that the following information applies to Vermeil Airlines: After-tax operating income [EBIT(1 - T)] for 2013 is expected to be $700 million. The depreciation expense for 2013 is expected to be $90 million.
Suppose you purchased one of these bonds at par value when it was issued. Right away, market interest rates jumped, and the YTM on your bond rose to 6%. What happened to the price of your bond
David Ortiz Motors has a target capital structure of 45% debt and 55% equity. The yield to maturity on the company's outstanding bonds is 9%, and the company's tax rate is 40%.
What interest rate does Bob Jones need to make on a taxable investment to equal the 6% he can make on a tax free bond, assuming he is in the 40 percent tax bracket
You also have 100,000 shares of $100 par, 9% dividend perpetual preferred stock outstanding. The current market price is $90.00. Any new issues of preferred stock would incur a $3.00 per share flotation cost.
Assume that Window Printing, Inc. decides to wait six (3) months to make the investment due to an unexpected cash expenditure but still needs the new printing press in six (6) months.
The housekeeping services department of ABC Hospital had $250,000 in direct costs during 2006. these costs must be allocated to ABC's three revenue-producing patient services departments using the direct method.
A company is considering a project with a life of 3 years. The initial investment is $15,000 with annual cash inflows of $7,000. Assume the Cost of Capital is 10%.
Midwest Packaging's ROE last year was only 3%; but its management has developed a new operating plan that calls for a debt-to-assets ratio of 50%, which will result in annual interest charges of $235,000.
Morin Company's bonds mature in 8 years, have a par value of $1,000, and make an annual coupon interest payment of $65. The market requires an interest rate of 8.0% on these bonds.
The before-tax cost of debt is 7.50%, and the tax rate is 40%. The target capital structure consists of 45% debt and 55% common equity. What is the company's WACC if all the equity used is from retained earnings
Determine the present value of an annuity due of $1,000 per year at 10 years discounted back to the present at an annual rate of 10 percent. What would be the present value of this annuity due
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