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You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $330,000. The truck falls into the MACRS 3-year class, and it will be sold after 3 years for $58,000. Use of the truck will require an increase in NWC (spare parts inventory) of $5,800. The truck will have no effect on revenues, but it is expected to save the firm $85,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 30 percent. What will the cash flows for this project be during year 3?
The spot price of an investment asset is $43 per unit and the annual risk-free rate for all maturities (with continuous compounding) is 3%. The asset provides an income of $1.26 per unit at the end of the first and second years. Assuming no arbitrage..
How much interest will you pay in the 11th year of a $100,000, 7.5%, 25 year mortgage, assuming monthly compounding? (Hint: 121-input, you need to think about what should be entered for amort)
Discuss the difference between this method and the others we have used so far. Analyze the numbers in the problem using an excel spreadsheet.
Assume you are analyzing stock market risk premiums over time. Which one of these would be the computation to use to compute the standard error of those premiums?
Steve's Specialties Inc. paid its dividend yesterday, which was $1.25. The dividend has been growing at a rate of 0.045 and is expected to continue indefinitely at that rate. Steve's common stock is currently trading at 21.00 per share. The firms bet..
Data on weekly stock prices for Microsoft Corporation, Exxon Mobil Corporation and the S&P 500 Index were used to compute the following historical volatility and expected return. compute the slope of the Capital Market Line (CML) when the risk-free r..
It is often stated that anyone with a pencil can calculate financial ratios, but it takes a brain to interpret them. What kinds of things should the analyst keep in mind when evaluating the financial statements of a given firm?
If the stock is currently priced at $68.38, what is the annual continuously compounded rate of interest?
Some argue that the actions of the Fed since 2008 have been a net-zero type of transaction (i.e. has had no effect on yields). In a few short sentences detail one argument that it is a net-zero type of transaction, and one counter-argument to this.
A firm has decided to replace an existing asset with a newer Model. The existing asset originally cost $30,000 . The current book value of the existing asset for tax purposes is $ 14,400. The existing asset can be sold for $ 25,000. The new asset wil..
Find the bond's price today and four months from now after the next coupon is paid. What is the total rate of return on the bond?
As a financial advisor, you are assigned a new client who is considering investing in one of two stocks, A or B. The table below shows information about the performance of stocks A and B last year. What reasons will you convey to your client to justi..
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