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David Co. produces all-terrain vehicles (ATVs). The once successful line is no longer selling well, so the company is considering production of a new improved 4 passenger ATV. This can be done by buying needed production equipment. The after tax cash flow for buying this equipment is $900,000, at the beginning of Year 0. The alternative to produce the same output, is to lease that same equipment through four equal payments of $238,000 each year paid at the beginning of the year. The required rate of return (hurdle rate) for this business is 12 percent. Assume no taxes. Revenue from sales of the new 4 passenger ATV is expected to be:
Year 1 - $425,000
Year 2 $300,000
Year 3 $170,000
Year 4 $90,000
Calculate the net present value of both the new purchase option and the lease option. Show all work. Determine the best option for David and justify your answer.
Miller's Hardware plans on saving $42,000, $54,000, and $58,000 at the end of each year for the next three years, respectively. How much will the firm have saved at the end of the three years if it can earn 4.5% on its savings?
A hedge fund has a capital of $100 million and invests in a long/short strategy on the U.S. equity market, with a long bias. It follows a 150/50 strategy meaning 150% long and 50% short. Shares can be borrowed from a primary broker. The primary broke..
Corben Inc. has a successful brand with the name Crunz. The market size in which Crunz competes is $4 billion, and Crunz has generated sales of $400 million. It has a contribution margin of 30% and annual fixed costs of $20 million. Corben Inc. is th..
What is the present value of all required payments under the lease contract? A check of the Auto Lease Guide (ALG) reveals an anticipated depreciation of 7% per annum, if the current price is $35,000 what is the anticipated future value of the car, i..
Which of the following would increase a firm's net cash flow? A firm issues $100 million of new long-term bonds. These bonds have a coupon interest rate of 5%. Which of the following statements must be true if the firm uses all of the money raised to..
1. calculate the annualized forward premium or discount on six-month forward yen.2. if you are planning to go to japan
Different places as it moves from office to living room and into our pockets and where is this all headed.
Which of the following statements is true about the constant growth model?
A portfolio consists of an index mutual fund which represents the overall market and Treasury bills. The fund has a portfolio weight of 60%. The risk-free rate is 3.2% and the market risk premium is 7.6%. What is your best estimate of the portfolio e..
Dupuis can borrow at 12.00 percent. Dupuis currently has no debt, and the cost of equity is 15 percent. The current value of the firm is $676,000. The corporate tax rate is 38 percent. What will the value be if Dupuis borrows $227,000 and uses the pr..
An oil company employs a petroleum engineer on his 45th birthday at a salary of $60,000 per year, which is expected to increase by an average of $1,500 at the end of each year until his retirement age of 65. The company’s retirement package pays one-..
Determine the firm's free cash flow and calculate the liquidity, activity, debt, profitability, and market ratios for Jaedan industries.
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