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The Clayton Manufacturing Co. is considering an investment in a new automated inventory system for its warehouse that will provide a cash savings to the firm over the next five years. The firm’s CFO anticipates additional EBITDA from cost savings equal to $200,000 for the first year of operation of the center and over the next four years, the firm estimates that this amount will grow at a rate of 5% per year. The system will require an initial investment of $800,000 that will be depreciated over a five-year period using straight-line depreciation of $160,000 per year. Assume a 35% tax rate. What is the NPV of this project if the discount rate is 12%? Assume a zero salvage value at the end of the fifth year.
You’re prepared to make monthly payments of $190, beginning at the end of this month, into an account that pays 6 percent interest compounded monthly. How many payments will you have made when your account balance reaches $10,000?
Write a 300-word essay recommending a cash management strategy for the company that will minimize the financing cost and increase the cash flows for the company.
Long-term bonds are exposed to greater interest-rate risk and have lower liquidity than short-term bonds. Why, then, would any investor buy long-term bonds if their yields are lower than those of short-term bonds?
What is the present value of the following payment stream, discounted at 8% annually: $1,000 at the end of year 1, $2,000 at the end of year 2, and $3,000 at the end of year 3?
What does it mean if a company has a P/E ratio of 29.98 while the industry and sector ratios are 56.22 and 27.66? How are they performing against the industry and sector ratios? Why are they performing as such?
You have just purchased a 10-year TIPS with face value $1,000 and a 4% coupon rate. Inflation for the year turns out to be 6%. What will your interest payments be next year? Show work or explain.
Suppose the corporate tax rate is 40%. Consider a firm that earns $1000 before interest and taxes each year with no risk. The risk free rate is 5%. Suppose the firm has no debt and pays out its net income as a dividend each year. What is the value of..
In the two-period model, suppose a household's income in the first period is $40,000, income in the second period is $50,000, and the real interest rate is 25 percent. A sudden shock changes the household's income to $45,000 and income in the second ..
Give an example each of a situation where you would prefer a futures contract over or forward contract and conversely when you would prefer a forward contract over futures contract for hedging purposes. Give reasons.
Interpret and apply all bond terminology (i.e. par, maturity, coupon, price, yield, etc.).. Explain the relationship between a bond’s price and its maturity.. Explain the relationship between a bond’s price and its yield.. Explain the relationship be..
What variables must be known (or estimated) in applying the capitalization of cash flow method of valuation to a physical or financial asset?
State of the economy Probability Return on Stock A Return on Stock B “Fiscal Cliff” resolved 0.3 25% -10% “Fiscal Cliff” not resolved 0.7 -5% 30% Suppose you have $10,000 total. If you put $4,000 in Stock A and the remainder in Stock B, what will be ..
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