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A firm is considering an investment in a new machine with a price of $18.04 million to replace its existing machine. The current machine has a book value of $6.04 million and a market value of $4.54 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 $6.74 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 $254,000 in net working capital. The required return on the investment is 9 percent, and the tax rate is 38 percent. Assume the company uses straight-line depreciation. 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 $ 966,070.80 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 2.1646% % 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?
Bain & Company has the following data. What is the firm's cash conversion cycle?
An increase in the spot rate will cause an increase in the price of a put option. A forward is the same as a short call and a long put.
What is the initial cash outlay required to replace the existing fleet with the newer tractors?
Where would one look to measure free cash flows (FCF) on a firm's statement of cash flows?
Prepare the firm’s pro forma balance sheet for the next fiscal year. Calculate the external funds needed.
He would like you to construct information document detailing the various concepts with examples because these are not clearly understood by several members of the upper-level management. How will you explain the put-call parity concepts?
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 20 years to maturity, and a coupon r..
A binomial tree with three-month time steps is used to value a currency option. The domestic and foreign risk-free rates are 2% and 5% respectively. The volatility of the exchange rate is 20%. What is the risk neutral probability of an up movement?
Consider a call option for an asset with the following parameters. Determine the terminal distribution of the asset price (use binom.dist function in excel). describe the distrubtion (mean, standard deviation, shape). Draw the payoff diagram (not pro..
Carter Corporation's sales are expected to increase from $5 million in 2012 to $6 million in 2013, or by 20%. Its assets totaled $2 million at the end of 2012. Carter is at full capacity, so its assets must grow in proportion to projected sales. Unde..
A firm's overall cost of equity is:
Your current age is 22 and you plan to retire at age 67. At retirement you want to have a “nest egg” of $3 million in today’s buying power. Over that time-period you expect inflation to average 3% per year. If you can earn 3.0% APR, compounded monthl..
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