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Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,400,000; the new one will cost, $1,660,000. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $400,000 after five years. The old computer is being depreciated at a rate of $280,000 per year. It will be completely written off in three years. If we don’t replace it now, we will have to replace it in two years. We can sell it now for $520,000; in two years, it will probably be worth $130,000. The new machine will save us $300,000 per year in operating costs. The tax rate is 40 percent, and the discount rate is 11 percent. a-1 Calculate the EAC for the old computer and the new computer. a-2.
What is the NPV of the decision to replace the computer now?
Describe the uses of free cash flows to implement a firm’s corporate valuation model. Develop pro forma financial statements used to plan for and develop corporate financial planning. Explain the Additional Funds Needed (AFN) equation method and disc..
Some time ago, Vanessa purchased eleven acres of land costing $58,500. Today, that land is valued at $253,167. How long has she owned this land if the price of the land has been increasing at 9% per year? On your ninth birthday, you received $500 whi..
There are several calculations that can be used to make capital budgeting decisions (e.g. NPV, IRR, Payback). If you were the CFO of a company, which model would you use in making your decision? Explain why you would use it and compare why it is bett..
MU just developed new universal titanium replacement mixer blades. These replacement blades can be used in most mixers currently on the market. MU is selling these blades with a right of return for 30 days. Based on the new guidance on revenue recogn..
Your firm is contemplating the purchase of a new $610,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $66,000 at the end of that time. At what level of pretax cost ..
For an investor seeking a low-risk investment maturing in five years, do the bonds issued twenty-five years ago with a much higher coupon rate provide a more attractive return than the new five-year bonds?
Which of the following is an example of vertical integration?
You are considering two mutually exclusive projects. Project A has cash flows of -$72,000, $21,400, $22,900, and $56,300 for years 0 to 3, respectively. Should you accept or reject these projects based on payback analysis?
Merton Enterprises has bonds on the market making annual payments, with 18 years to maturity, and selling for $955. At this price, the bonds yield 9.2 percent. Required: What must the coupon rate be on Merton’s bonds? How do you find this using a fin..
The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 31 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are ..
Which is the best scenario when a U.S. based firm would like to make short term borrowings from lenders in France
Suppose that people expect a company's earnings to grow in the future at the same rate they have grown in the past. - Does this behavior satisfy the assumption of rational expectations? Explain.
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