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Wendy's boss wants to use straight-line depreciation for the new expansion project because he said it would give higher net income in earlier years and give him a larger bonus. The project will last 4 years and requires 1, 700,00 of equipment. The company could use with straight-line or the 3 year MACRS accelerated method. Under Straight-line depreciation, the cost of the equipment would be depreciated evenly over its 4-year life (ignore the half-year convention for the straight-line method). The applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, ajd 7.41%, as discussed in Appendix 11A. The company's WACC is 10%, and its tax rate is 40%
a. What would the depreciation expense be each year under each method?
b. Which depreciation method would produce the higher NPV, and how much higher would it be?
c. Why might Wendy's boss prefer straight-line depreciation?
A company has a target capital structure of 60% debt and 40% equity and the tax rate is 34%. If the cost of debt is 8%, and he cost of equity is 12%, what is WACC of the company at its target capital structure?
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The real risk-free rate, r*, is 2.1%. Inflation is expected to average 3.2% a year for the next 4 years, after which time inflation is expected to average 4.05% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yie..
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Discuss any trends in the net cash provided in operating, investing and financing activities for Home Depot and Lowes in FYE2008 and compare the liquidity, solvency, and profitability of Home Depot and Lowes' to draw conclusion on the financial man..
Mary wants to have $300,000 in her account in 12 years. The account earns 6.24% interest. About how much must Mary withhold from her pay each month to reach her goal?
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