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A bicycle manufacturer currently produces 309,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $2.10 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct? in-house production costs are estimated to be only $1.60 per chain. The necessary machinery would cost $202,000 and would be obsolete after ten years. This investment could be depreciated to zero for tax purposes using a? ten-year straight-line depreciation schedule. The plant manager estimates that the operation would require $37,000 of inventory and other working capital upfront? (year 0), but argues that this sum can be ignored since it is recoverable at the end of the ten years. Expected proceeds from scrapping the machinery after ten years are $15,150. If the company pays tax at a rate of 35% and the opportunity cost of capital is 15%?, what is the net present value of the decision to produce the chains? in-house instead of purchasing them from the? supplier?
Project the annual free cash flows (FCF?) of buying the chains.
The annual free cash flows for years 1 to 10 of buying the chains is $.(Round to the nearest dollar. Enter a free cash outflow as a negative? number.)
On Juan’s 26th birthday, he deposited $8,500 in a retirement account. Each year thereafter, he deposited $1,000 more than the previous year. Using a gradient series factor, determine how much was in the account immediately after his 35th deposit if: ..
Calculate the required rate of return for Aggies Enterprises assuming that investors expect a 4.0% rate of inflation in the future. The real risk-free rate is 3.0%, and the market risk premium is 7.0%. Aggie has a beta of 0.75, and its realized rate ..
Assume that today is December 31, 2016, and that the following information applies to Abner Airlines: After-tax operating income [EBIT(1 - T)] for 2017 is expected to be $650 million. Using the corporate valuation model approach, what should be the c..
Calculate and analyze the following ratios for your selected company for the last two years from the SEC Form 10-K: INVENTORY TURNOVER
What is the flotation cost adjustment that must be added to its cost of retained earnings?
In addition, you may wish to seek out further information through your own research. When you have reviewed the advice and the plans, please prepare a short (2-3 page) paper discussing:
Describe the different types of stock trading orders and discuss when you might want to use them. Explain the difference between whole and term life insurance.
Assume that a firm pays taxes on revenue and is allowed some deductions. What is the impact of the tax on the firm's desired level of capital in the last case?
Galehouse Gas Stations Inc. expects sales to increase from $1,680,000 to $1,880,000 next year. Galehouse believes that net assets (Assets − Liabilities) will represent 60 percent of sales. His firm has an 10 percent return on sales and pays 30 percen..
You own a bond with a 6.3 percent coupon rate and a yield to call of 7.2 percent. The bond currently sells for $1,105. If the bond is callable in five years, what is the call premium of the bond?
Define "horizontal analysis”:
On completion of her introductory finance? course, Marla Lee was so pleased with the amount of useful and interesting knowledge she gained that she convinced her? parents, who were wealthy alums of the university she was? attending, to create an endo..
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