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Pierre Imports is evaluating the proposed acquisition of new equipment at a cost of $90,000. In addition the equipment would require modifications at a cost of $10,000 plus shipping costs of $2,000. The equipment falls in the MACRS 3 year class and will be sold after 3 years for $35,000. The equipment would require increased inventory of $6,000. The equipment is expected to save the company $35,000 per year in before-tax operating costs. The company’s marginal tax rate is 30 percent and its cost of capital is 11%.
a. What is the cash outflow at Time 0?
b. What are the net operating cash flows in years 1, 2, and 3?
c. Calculate the non-operating terminal year cash flow.
d. Calculate net present value. Should the machine be purchased?
e. What is the Cost of capital?
Calculate patient revenue on accrual basis for the coming year. Subdivide revenue by program, and within each program subdivide it by type of payer.
A series of 5 constant dollar (or real dollar) payments (beginning with $5000 at the end of the first year) are increasing at the rate of 7% per year. Assume that the average general inflation rate is 5% and the market interest rate is 12% during thi..
A retirement home at Deer Trail Estates now costs $185,000. Inflation is expected to cause this price to increase at 6% annually over the next 20 years. How large an equal, annual, end –of-year deposit must be made each year into an account paying an..
Which of the following is false regarding Profitability index?
Tai Credit Corp. wants to earn an effective annual return on its consumer loans of 14.3 percent per year. The bank uses daily compounding on its loans. What interest rate is the bank required by law to report to potential borrowers?
Dinklage Corp. has 9 million shares of common stock outstanding. The current share price is $81, and the book value per share is $8. The company also has two bond issues outstanding. Assume that the overall cost of debt is the weighted average of tha..
A pharmaceutical company develops a media campaign targeting aging women at risk for osteoporosis. The ad is scheduled to run a total of 21 times and will air on several programs believed to reach the target population.
Volkswagen almost went bankrupt in 1973 for all of the following EXCEPT it failed to offset the exchange risk associated with its cost structure and revenue structure with a suitable liability structure it gambled on the value of dollars it priced it..
Describe how each of the activities of financial managers is related to the primary objectives of a corporation or non-profit organization; identify the objectives and be specific.
Suppose you buy a TIPS bond with a 5% coupon rate, 18 months to maturity, pays semiannually, and a YTM of 3.3%. The CPI is currently 275.2. It will increase to 288 in 6 months, to 291 in 12 months, and to 294 in 18 months. Calculate the price of this..
Draw a second IS/LM curve that depicts what would occur in the short-run, if in addition to the shock in part A, agents also tend to demand more money the larger the government budget deficit. Explain in words whether this additional force works to a..
Calculate the value of a three-month European put futures option when the futures price is $18, the strike price is $20, the risk-free rate is 10% per annum, and the volatility of the futures price is 30% per annum. Use DervaGem to check your price c..
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