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Your firm is contemplating the purchase of a new $1,036,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $100,800 at the end of that time. You will be able to reduce working capital by $140,000 (this is a one-time reduction). The tax rate is 32 percent and your required return on the project is 22 percent and your pretax cost savings are $470,250 per year. 1) What is the NPV of this project? 2) What is the NPV if the pretax cost savings are $338,600 per year? 3) At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?
When we talk about investing, the first thing that comes to mind for most people are stocks and bonds. However, there are many investing vehicles available. If you were told, you could only select one investment vehicle, what would it be and why?
Central Systems, Inc. desires a weighted average cost of capital of 7 percent. The firm has an after-tax cost of debt of 4 percent and a cost of equity of 10 percent. What debt-equity ratio is needed for the firm to achieve its targeted weighted aver..
Classify the problems as to whether they are pure-integer, mixed-integer, zero-one, goal, or nonlinear programming problems.
A company is issuing preferred stock that will pay a 4% dividend but will not pay the first dividend until 6 years from now. If the required return is 10%, what is the value of the stock today? Assume a par value of $100.
Two investments, C and D are being evaluated. They are mutually exclusive. Investment C has a higher NPV using any discount rate between zero and 9%, while D has a higher NPV using any discount rate between 9.1% and 15%. Which investment do you recom..
Suppose you face the prospect of receiving $1,393 per year for the next 4 years plus an extra $923 payment at the end of 4 years. Determine how much this prospect is worth today if the required rate of return is 7 percent.
Scott purchased 200 shares of Frozen Foods stock for $48 a share. Four months later, he received a dividend of $0.22 a share and also sold the shares for $42 each. What was his annualized rate of return on this investment?
Suppose inflation is expected to increase the cost of producing gold by 10% a year but the price of gold does not change because of large sales of stockpiled gold by foreign governments.
Hayden Ltd intends to make its first dividend payment 5 years(s) from now. It then intends to pay dividends annually thereafter. The company has announced it expects the first three dividends to all be of the magnitude of around 5 cents per share.
A contractor departed from the specifications at a number of points in a contract to build a house. The cost to put the house in the condition called for by the contract was approximately $14,000. The contractor was sued for $50,000 for breach of con..
You bought one of Bergen Manufacturing Co.’s 7.8 percent coupon bonds one year ago for $1,061. These bonds make annual payments and mature twelve years from now. Suppose you decide to sell your bonds today when the required return on the bonds is 4.5..
Investment Bankers Association (IBA) has an agreement with Northern Airlines to underwrite an equity issue with a market value equal to $11 million. a) If IBA's underwriting fee is 5 percent and its out-of-pocket expenses associated with the issue ar..
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