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1. Your firm is contemplating the purchase of a new $720,000 million computer-based order entry system. The PVCCATS is $260,000, and the machine will be worth $280,000 at the end of the five-year life of the system. You will save $350,000 before taxes per year in order processing costs and you will be able to reduce working capital by $110,000 (this is a one-time reduction). If the tax rate is 35 percent, what is the IRR for this project?
2. In the previous problem, suppose your required return on the project is 20 percent, your pre-tax cost savings are now $300,000 per year, and the machine can be depreciated at 30 percent (Class 10). Will you accept the project?
What if the pre-tax savings are only $240,000 per year? At what level of pre-tax cost savings would you be indifferent between accepting the project and not accepting it?
Based on your understanding of the concept of cost capital, which of the following statements are valid?
A brilliant young scientist is killed in a plane crash. It was anticipated that he could have earned $330,000 a year for the next 50 years. The attorney for the plaintiff’s estate argues that the lost income should be discounted back to the present a..
You own a bond with the following features: 8 years to maturity, face value of $1000, coupon rate of 2% (annual coupons) and yield to maturity of 2.3%. If you expect the yield to maturity to remain at 2.3%, what do you expect the price of the bond to..
Suppose 90-day investments in Europe have a 5% annualized return and a 1.25% quarterly (90-day) return. In the United States, 90-day investments of similar risk have a 7% annualized return and a 1.75% quarterly return. In today’s 90-day forward marke..
Calculate the current return on a stock of your choice and compare it to returns on bonds. Which is better to invest in presently a stock or a bond in this company and why? Please explain
Describe the variables and their scale of measurement
Prepare a classified balance sheet in report form. For assets, use the classifications of current assets, plant and equipment, intangibles, and other assets. For liabilities, use the classifications of current liabilities and long-term liabilities.
Which of the following in NOT a typical activity for an ethics officer?
Assume the CAPM holds, and you are given the following values. Expected return on Malware stock = 12% What is the expected return on the market? Show your calculation.
The market value of the equity of Thompson, Inc., is $599,000. The balance sheet shows $38,000 in cash and $209,000 in debt, while the income statement has EBIT of $110,000 and a total of $154,000 in depreciation and amortization. What is the enterpr..
The central bank is an excellent topic to research. There is quite a bit of information regarding the central bank, the federal reserve, and monetary policy. In addition, international policy is also an interesting topic to cover.
You take out a loan for $16101 that has equal nominal annual payments over the next five years. The real rate of return on the loan is 3.9%, and the annual inflation rate is 2.1%. What will the payments be?
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