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The Pan American Bottling Co. is considering the purchase of a new machine that would increase the speed of bottling and save money. The net cost of this machine is $72,000. The annual cash flows have the following projections. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year Cash Flow 1 $ 29,000 2 33,000 3 35,000 4 21,000 5 18,000 a. If the cost of capital is 12 percent, what is the net present value of selecting a new machine? (Do not round intermediate calculations and round your final answer to 2 decimal places.) Net present value $ b. What is the internal rate of return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Internal rate of return % c. Should the project be accepted? Yes No
The book discusses the Efficient Market Hypothesis (EMH) and its three forms. The EMH has a lot to do with information and stock prices. How does information get into prices? How do we know if prices reflect all available information?
Your job pays you only once a year for all the work you did over the previous 12 months. Today, December 31, you just received your salary of $69,000 and you plan to spend all of it. However, you want to start saving for retirement beginning next yea..
Sims Corp. will buy back 900 of its 2500 shares outstanding. The return on equity before the buy-back is 14%. The debt-to-equity ratio before the buy-back is 1. Also, the company plans to keep a constant debt level, with an interest rate of 3%. Assum..
You have found the following historical information for the Daniela Company over the past four years: Earnings are expected to grow at 19 percent for the next year. Using the company’s historical average PE as a benchmark, what is the target stock pr..
Dd a new line of bow ties that will require the acquisition of new knitting and tying machine. The machine will cost $1,000,000. It is classified as a 7-year MACRS asset and will be depreciated as such. Interest costs associated with financing the eq..
We begin the capital budgeting process by determining the incremental earnings of a project. The marginal corporate tax rate is the tax rate the firm will pay on an incremental dollar of pretax income. Investments in plant, property, and equipment ar..
Lohn Corporation is expected to pay the following dividends over the next four years: $18, $14, $13, and $6.50. Afterwards, the company pledges to maintain a constant 4 percent growth rate in dividends forever. If the required return on the stock is ..
A declining stock market index due to lower share prices _____.
John plans to buy a vacation home in 7 years from now and wants to have saved $39,772 for a down payment. How much money should he place today in a saving account that earns 8.75 percent per year (compounded daily) to accumulate money for his down pa..
Find the yield to maturity of a bond which matures in 15 years, is currently selling at $900 and has an annual coupon payment of 4% paid, semi-annually.
Which has a longer Macaulay's duration: a $ 1 million face value zero coupon bond with a two- year maturity and a yield of 6 percent, or a $ 1 million face value coupon bond with a two year maturity that pays 6 percent coupon interest? Explain your r..
Sewer's Paradise is an all equity firm that has 5,000 shares of stock outstanding at a market price of $15 a share. The firm's management has decided to issue $30,000 worth of debt and use the funds to repurchase shares of the outstanding stock. The ..
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