Reference no: EM131054673
A firm is considering an investment in a new machine with a price of $18.2 million to replace its existing machine. The current machine has a book value of $6.2 million and a market value of $4.7 million. The new machine is expected to have a four-year life, and the old machine has four years left in which it can be used. If the firm replaces the old machine with the new machine, it expects to save $6.9 million in operating costs each year over the next four years. Both machines will have no salvage value in four years. If the firm purchases the new machine, it will also need an investment of $270,000 in net working capital. The required return on the investment is 11 percent, and the tax rate is 40 percent. Assume the company uses straight-line depreciation.
(All parts need to be completed)
What is the NPV of the decision to purchase a new machine? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)
NPV $
What is the IRR of the decision to purchase a new machine? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
IRR %
What is the NPV of the decision to keep the old machine? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. A negative answer should be indicated by a minus sign.)
NPV $
What is the IRR of the decision to keep the old machine? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. A negative answer should be indicated by a minus sign.)
IRR %
|
What is the current yield and interpret the current yield
: Wilson Wonders’ bonds have 12 years remaining to maturity. Interest is paid semiannually, the bonds have $1,000 par value, and the coupon interest rate is 10%. The bonds sell at a price of $850. a. What is the yield to maturity for this bond? b. What..
|
|
What is price of stock-expected long-run growth rate
: X-Terra stocks just paid a dividend of $2.00 per share (i.e., D0=2.0). If the expected long-run growth rate for this stock is 5%, and if investors require 19% return, what is the price of the stock?
|
|
Another utilization of cash flow analysis-bid price
: Another utilization of cash flow analysis is setting the bid price on a project. To calculate the bid price, we set the project NPV equal to zero and find the required price. Thus the bid price represents a financial break-even level for the project...
|
|
Cash flow-indifferent in accepting project and rejecting
: A project that provides annual cash flows of $16,300 for eight years costs $69,000 today. What is the NPV for the project if the required return is 7 percent? Accept Reject What is the NPV for the project if the required return is 19 percent? NPV $ ..
|
|
What is the IRR of the decision to keep the old machine
: A firm is considering an investment in a new machine with a price of $18.2 million to replace its existing machine. The current machine has a book value of $6.2 million and a market value of $4.7 million. The new machine is expected to have a four-ye..
|
|
What should be the coupon rate of the bonds
: Ten years ago, News Corp. raised capital by issuing 20-year quarterly coupon bonds with $1,000 par value. a. If investors required 12% return, quarterly compounding, for News Corp.’s bonds when the bonds were issued ten years ago, what should be the ..
|
|
What is the future value of this prize
: The Florida lottery agrees to pay the winner 256,000 at the end o each year for 20 years. What is the future value of this prize if each payment is put in a account earning0.10
|
|
Chocolate and more offers bond with coupon rate
: Chocolate and more offers a bond with a coupon rate of 6 percent, semi-annual payments, and a yield to maturity of 7.73 percent. the bonds mature in 9 years. What is the market price of a 1,000 face value bond?
|
|
What is the aftertax cash flow from this sale
: ABC Company purchased $20,541 of equipment 4 years ago. The equipment is 7-year MACRS property. The firm is selling this equipment today for $5,524. What is the aftertax cash flow from this sale if the tax rate is 25 percent? The MACRS allowance perc..
|