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Consider the following capital budgeting problem. The following two machines are mutually exclusive and the firm would keep reinvesting in whatever machine it buys. Machine A would be reinvested every 4 years, machine B every 3 years. The cash flows associated with each machine are tabulated as follows; all numbers are in thousand dollars; the relevant discount rate is 10% for both machines.
Year Machine A Machine B0 -80 -1001 50 602 50 603 50 604 25 -
1a. Which of the two machines is the better investment project? Analyze the question under the assumption that whatever machine the company buys has to be reinvested in perpetuity.1b. Suppose machine A fits current technology, whereas machine B needs a one-time re-tooling for the company. These one-off installation costs would be $10,000 today. What is the optimal investment decision now?1c. Suppose the firm has an old machine in place that would serve for another two years. They can postpone investing in either machine A or B and keep using this machine. When should they stop using the old machine? Cash flows for the old machine are:Year Cash Flow1 502 203 0
1d. Suppose the investment opportunity described above lasts only for 24 years. Recalculate your decision rule for questions 1.a and 1.b. What is the NPV of the optimal investment policy now?
You bought Chemtron stock for $45 a year ago. It is selling for $54 today. What is your holding period return?
Dan buys a property for $250,000. He is offered a 20-year loan by the bank, at an interest rate of 6% per year. What is the annual loan payment Dan must make?
what is financial analysis?
Francis Inc.'s stock has a required rate of return of 10.25%, and it sells for $20.00 per share. The dividend is expected to grow at a constant rate of 6.00% per year. What is the expected year-end dividend, Dmc060-1.jpg? $0.85 $0.64 $0.89 $0.81 $..
You have another $9,000 to invest and want to divide it between an asset with a beta of 1.74 and a risk-free asset. How much should you invest in the risk-free asset?
A nursing home contracts with an HMO for skilled nursing care at $2.00 PMPM. If costs are expected to average $120 per day, what is the maximum utilization of days per 1,000 members that the nursing home can experience before it begins to lose mon..
1. Expected return on a project; it is the rate that makes net present value (NPV) break even.
You've determined the profitability of a planned project by finding the present value of all the cash flow from that project. Which of the following would cause the project to look less appealing, that is, have a lower present value?
For both milling machines, use straight-line depreciation to zero over the project's life and assume a salvage value of $30,000. If your tax rate is 34 percent and your discount rate is 8 percent, compute the EAC for both machines.
Taking the example of financial statements of any existing company for any two years, perform a ratio analysis using profitability ratios and liquidity ratios.
The current price of a 10-year, $1,000 par value bond is $1,000. Interest on this bond is paid every six months, and the simple annual yield is 14 percent. Given these facts, what is the annual coupon rate on this bond?
What is the value of the stock today? 4. Would today's stock value be affected by the length of time you intend to hold the stock?
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