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Suppose you have to decide whether selling an old machine or keeping it with a major overhaul: A) Selling the machine at time zero for $750,000 with zero book value and paying the tax of 40%. B) Keeping the machine, which requires a major overhaul cost of $1,000,000 at time zero. The overhaul cost is depreciable from time 0 to year 5 (over six years) based on MACRS 5-year life depreciation with the half year convention (table A-1 at IRS). In this case machine can produce and generate equal annual revenue for five years (year 1 to 5) and salvage value of the machine will be $250,000 with zero book value at the end of year 5. The operating cost of the machine will be $400,000 per year from year 1 to year 5. Calculate the minimum annual revenue that machine has to generate to break-even the selling with NPV of keeping the machine. Consider 40% income tax rate and after-tax minimum ROR of 10%
Assume the term structure of interest rates becomes inverted?, with short-term rates going to 14 percent and long-term rates 6 percentage points lower than short-term rates. Earnings before interest and taxes are $1,010,000. The tax rate is 30 percen..
Spencer Supplies stock is currently selling for $60 per share. The firm is expected to earn $5.10 per share this year and to pay a year-end dividend of $3.70.
High electricity costs have made Farmer Corporation’s chicken-plucking machine economically worthless. Only two machines are available to replace it. The International Plucking Machine (IPM) model is available only on a lease basis. How much debt is ..
The Perez Company has the opportunity to invest in one of two mutually exclusive machines that will produce a product it will need for the foreseeable future. Machine A costs $11 million but realizes after-tax inflows of $5 million per year for 4 yea..
Your investment has a 20% chance of earning a 30% rate of return, a 50% chance of earning a 10% rate of return, and a 30% chance of losing 6%. What is your standard deviation on this investment?
Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next nine years because the firm needs to plow back its earnings to fuel growth. The company will pay a $11 per share dividend in 10 years and will..
Eisenhower Communications is trying to estimate the first-year net operating cash flow (at Year 1) for a proposed project. The financial staff has collected the following information on the project: What is the project's operating cash flow for the f..
Chase has a $42,500 line of credit which charges an annual percentage rate of prime rate plus 5%. His starting balance on June 1 was $2,550. On June 4 he borrowed $5,300. On June 9, Chris made a payment of $800, and on June 17 he borrowed $5,600. If ..
Luis has $120,000 in his retirement account at his present company. Because he is assuming a position with another company, Luis is planning to "roll over" his assets to a new account. Luis also plans to put $3000/quarter into the new account until h..
W.L. Brown purchased a new large Chevrolet truck from Days Chevrolet. The truck had been manufactured by General Motors Corporation. One month later, an employee of Brown’s was operating the truck when it ceased to function in rush-hour traffic on In..
The Zecor Company has warrants outstanding with an exercise price of $45. The warrants have a market price of $21. Zecor's common stock is currently selling at $52 per share. How many shares of stock can be purchased with this warrant? Show work.
Atlantis Fisheries issues zero coupon bonds on the market at a price of $492 per bond. These are callable in 9 years at a call price of $550. Using semi annual compounding, what is the yield to call for these bonds?
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