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You have become very successful and are considering the purchase of a plane for your firm. The Piper model has an initial cost of $375,000, annual operating costs of $24,000 and a salvage value of $150,000. Its estimated holding period is 7 years. The Cessna model has an initial cost of $325,000, but annual operating costs of $29,500 and an estimated salvage value of $100,000. Its estimated holding period is 8 years. Your cost of capital is fifteen percent. Ignoring depreciation and taxes, which model would be the best choice assuming they both would perform the required tasks?
Adams operates his $25000 firm using his own equity. Bob operates his firm with $12500 of his own money plus $12500 of debt at a cost of 12 percent interest. Calculate Adams's and Bob's return on equity if their respective businesses produce earnings..
A portfolio that combines the risk-free asset and the market portfolio has an expected return of 8 percent and a standard deviation of 11 percent. The risk-free rate is 5 percent, and the expected return on the market portfolio is 13 percent. Assume ..
Calculate the present value of total outflows. Calculate the net present value?
Prepare the current balance sheet for the firm using the projected sales figure. Calculate the external funds needed.
Midland Petroleum is holding a stockholders’ meeting next month. Ms. Ramsey is the president of the company and has the support of existing board of directors.
Consider a standard mortgage (360 months) with monthly payments and a nominal rate (monthly compounding) of 5.60%.
If the required rate of return on the preferred stock is 6.8 percent, what is the fair present value of the stock?
Trinkle Foods Limited of Canada has invented a new salt substitute, branded Odessa. Should Trinkle spend money to test the market?
how much do you need to earn on a monthly basis to qualify for a mortgage?
What is the present value of a perpetuity that pays $1,000 per year, beginning one year from now, if the appropriate interest rate is 2%? (Round off to the nearest dollar and ignore the $ sign in your input.)
Verify this result and explain what happens to the continuously compounded forward rate as the number of days in the forward contract increases and the more distant spot rate remains at 6 percent.
Targeting investment toward longer term (nonliquid) assets and using shorter term financing results in
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