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A company is considering building a new and improved production facility for one of its existing products. It would be built on a piece of vacant land that the firm owns. This land was acquired four years ago at a cost of $500,000; it has a current market value of $800,000. The building can be erected for $600,000. Machinery (equipment) worth $120,000 needs to be bought. The company will finance the construction of the building and the purchase of the equipment by borrowing $720,000 for 10 years at 10% interest. Interest will be paid annually and the full amount of the loan will be repaid in one payment at the end of the 10 years. The company's net working capital will increase by $100,000 if the new production facility is built. Operating savings from the new production facility are expected to be $300,000 per year for the next 10 years. The total salvage value at the end of the 10 years is expected to be $1,000,000- one quarter of which is attributable to the building and equipment. The building and equipment will be amortized on a straight-line basis over 10 years. The firm's tax rate is 40 percent and CCA will be taken on all depreciable assets at a rate of 20%. The firm's weighted average cost of capital (WACC) is estimated at 15 percent. Should the company build the new and improved production facility?
Axel Telecommunications has a target capital structure that consists of 70 percent debt and 30 percent equity. What will be its dividend payout ratio?
Assume you've two bank accounts, one called Account A and another Account B. Account A will be worth $4,700.00 in one year. Account B will be worth $7,900.00 in two years. Both accounts earn 3.8% interest. What is the present value of each of thes..
If you can earn eight percent per year on your retirement account, how much will you have to save each year if you want to retire in 20 years with $1 million?
Presume that a highly liquid market does not exist for long-term T-bonds and and the expected rate of inflation is a constant
A mutual fund manager expects her portfolio to earn a rate of return of 11 percent this year. The beta of her portfolio is .8. should you invest in this mutual fund? Show your work and explain why or why not.
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Find out the annual payment required to fund the future annual annuity of $12,000 per year. You will fund this future liability over the upcoming five years, with the first payment to take place one year from today.
A firm issues a 10-year debt obligation that bears a 12% coupon rate and gives the investor-Calculate the after-tax cost of debt, assuming the debt remains outstanding until maturity.
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