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Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,132,000 and will last for six years. Variable costs are 35 percent of sales, and fixed costs are $270,000 per year. Machine B costs $5,355,000 and will last for nine years. Variable costs for this machine are 30 percent of sales and fixed costs are $205,000 per year. The sales for each machine will be $11.6 million per year. The required return is 10 percent, and the tax rate is 35 percent. Both machines will be depreciated on a straight-line basis. The company plans to replace the machine when it wears out on a perpetual basis. Calculate the NPV for each machine. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places (e.g., 32.16).) NPV Machine A $ Machine B $ Calculate the EAC for each machine. (Your answers should be a negative value and indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places (e.g., 32.16).) EAC Machine A $ Machine B $
Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.7 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be wor..
An irrevocable trust has certain advantages not provided by a revocable trust. Which of the following is (are) advantages of the irrevocable trust over the revocable trust?
Optimize a portfolio consisting of two stocks and cash invested at the risk free rate given that the maximum tolerable risk is portfolio sigma = 0.1, r = 0.01,
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If investors require a 16% return and the growth rate in dividends is expected to be 8%, what will the market price of the stock be?
Western Wear is considering a project that requires an initial investment of $260,000. The firm maintains a debt-equity ratio of .40 and has a flotation cost of debt of 8 percent and a flotation cost of equity of 10.5 percent. The firm has sufficient..
Castle View Games would like to invest in a division to develop software for video games. To evaluate this decision, the firm first attempts to project the working capital needs for this operation. Its chief financial officer has developed the follow..
Five years ago, Northwest Water (NWW) issued $40,000,000 face value of 30-year bonds carrying a 8% (annual payment) coupon. NWW is now considering refunding these bonds. It has been amortizing $4 million of flotation costs on these bonds over their 3..
Which of the following statements best describes the characteristics of a closed-end mutual fund?
Discuss the importance of option expense reporting within the income statement by the company. It is a very big issue for a prospective investor, yet some companies do not practice this reporting. Why?
A firm is considering purchasing an asset that will have a useful life of 10 years and cost $5 million; it will have installation costs of $500,000 and a salvage or residual value of $500,000. What is the annual straight-line depreciation for this..
Money is (for obvious reasons) extremely important in our society and has been for several years. Make an argument for one of the two investment opportunities.
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