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What is the major purpose of depreciation, and describe at least two ways in which assets can be depreciated. If the ABC Medical group purchased a machine that cost $28,000 and had an estimated useful life of 7 years and an estimated salvage value of $7,000 on January 1, 2009, what would the book value of the asset be at the end of 2010 under the two types of depreciation you described above?
A company's 5-year bonds are yielding 9.9% per year. Treasury bonds with the same maturity are yielding 5.15% per year, and the real risk-free rate (r*) is 2.65%. The average inflation premium is 2.1%, and the maturity risk premium is estimated to be..
California Real Estate, Inc., expects to earn $72.3 million per year in perpetuity if it does not undertake any new projects. The firm has an opportunity to invest $17.3 million today and $6.3 million in one year in real estate. What is the price of ..
Two firms, U and L, are identical except for their capital structure. Both own a single perpetual asset that will have annual after tax-free cash flows of $25million in a boom and $5million in a slump. What is the value of firm U in $millions? What i..
Klingon Empire Pharmaceuticals is expecting a growth rate of 14% for the next two years due to its new flu preventive drug, Katterracsin. Thereafter it should level to an 8% growth rate. The last dividend paid was $.65 per share. What price should th..
You purchase a Eurobond, at a quoted price of 102%. The annual coupon is 6%, and we are exactly one month after the past coupon date. You buy 100,000 EUR nominal value of the bond. What is the total cash paid for this bond purchase?
What is the main objective of managing cash flows? What are the reasons an organization should have cash on hand?
Exxon Oil Corp. is negotiating the purchase of 1 million barrels of oil from a bankrupt competitor to be delivered and paid for in exactly 1 year. Exxon is willing to pay $106 per barrel because they can sell the oil in advance to oil refineries. For..
Suppose the following bond quotes for IOU Corporation appear in the financial page of today’s newspaper. Assume the bond has a face value of $2,000 and the current date is April 19, 2015. What is the yield to maturity of the bond? What is the current..
A cash flow is expected to be $500.00 (50% probability) or $1,000.00 (50% probability) next year. Assuming the cash flow next year is $500.00, the cash flow the following year is $400.00 (60% probability) or $600.00 (40% probability). What is the pro..
What is the Macaulay duration of a 5.4 percent coupon bond with nine years to maturity and a current price of $1,055.40? What is the modified duration?
We begin the capital budgeting process by determining the incremental earnings of a project. The marginal corporate tax rate is the tax rate the firm will pay on an incremental dollar of pretax income. Investments in plant, property, and equipment ar..
Francis purchased a stock one year ago for $20, and it is now worth $24. The stock paid a dividend of $3 during the year. What was the stock's rate of return from capital appreciation during the year?
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