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Question: Beryl's Iced Tea currently rents a bottling machine for $53,000 per year, including all maintenance expenses. It Is considering purchasing a machine Instead, and is comparing two options: A. Purchase the machine it is currently renting for $165,000. This machine will require $23,000 per year in ongoing maintenance expenses. B. Purchase a new. more advanced machine for $250,000. This machine will require $16,000 per year in ongoing maintenance expenses and will lower bottling costs by $12,000 per year. Also, $36,000 will be spent upfront training the new operators of the machine. Suppose the appropriate discount rate is 8% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the rental of the machine. Assume also that the machines will be depreciated via the straight-line method over seven years and that they have a ten-year life with a negligible salvage value. The marginal corporate tax rate is 40%. Should Beryl's Iced Tea continue to rent, purchase its current machine, or purchase the advanced machine? To make this decision, calculate the NPV of the FCF associated with each alternative.
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In an efficient equity market, where there are no mis-priced stocks, no one can make abnormal rates of return. If this is the case, how would you then justify the existence of well-paid financial analysts in all states?
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Johnson Enterprises, Inc. offers $110 par-value preferred stock that pays a 12% annual dividend. How much are you willing to pay for one share of this stock.
The following conditions involve the application of time value of money concept. Janelle Carter deposited $9,750 in the bank on January 1, 1991, at the interest rate of 11% compounded annually. How much has accumulated in account by January 1, 2008?
directions be sure to make an electronic copy of your answer before submitting it to ashworth college for grading.
An asset-backed security has been credit enhanced with a letter of credit from a bank with a single A credit rating.
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WACC and NPV. Hankins, Inc., is considering a project that will result in initial aftertax cash savings of $4.2 million at the end of the first year.
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