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The ABC Construction Company is considering the purchase of a diesel power shovel to improve its productivity. The company finances the purchase by borrowing from a local bank with no origination fee. The pricipal will be repaid with the compounded interests (annual nominal interest rate: 10%) for 5 years. The bank compounds the financial charges semi-annually. The shovel, which costs $80,000, is expected to produce a benefit of $50,000 in the first year, and $4,000 less in each succeeding year for a total of 5 years (i.e., benefit of $46,000 in year 2, $42,000 in year 3, continuing to $34,000 in the fifth year). The annual mainenance and operation cost of the equipment is $15,000 over 5 years. The company will sell the equipment with the expected resale price of $5,000 at the end of year 5. Draw cash flow diagrams and determine whether the purchase is worthwhile at the MARR of 12%
Assume that you have a local retail furniture store in your area that sells direct to the customer thereby eliminating the middleman. Assume that the store does not manufacture the furniture. The store claims that it passes these cost savings on to y..
On may 1,2008 your client won 21.25 million in the Wisconsin lottery. The lottery commission gave them the option of receiving a lump sum or a 25-year annuity paying 850,000 each year, with the first payment received on May 1, 2008 and the last payme..
You own 1,000 shares of Jennings Corp. stock, which is currently selling for $88.00. Calculate the number of shares you would own and the stock’s market price after each of the following stock splits.
Leisure Lodge Corporation is expected to pay the following dividends over the next four years: $19, $15, $7.6 and $2.9. Afterwards, the company pledges to maintain a constant 3 percent growth rate in dividends forever. If the required return on the s..
What inherent characteristic of corporations creates the need for a system of checks on manager behavior and what are some examples of agency problems - what are the advantages and disadvantages of the corporate organizational structure?
Suppose a government lives for two periods. It makes an exogenous amount of government expenditures each period. These have nominal value P1G1 = 100 and P2G2 = 50. It also charges households a lump sum tax, Tt each period. Write down the government’s..
You are planning to purchase the stock of Ted's Sheds Inc. and you expect it to pay a dividend of $3 in 1 year, $4.25 in 2 years, and $6.00 in 3 years. You expect to sell the stock for $100 in 3 years. If your required return for purchasing the stock..
A balance sheet shows a total of no callable $41 million long-term debt with a coupon rate of 8.10% and a yield to maturity of 8.50%. This debt currently has a market value of $52 million. The balance sheet also shows that the company has 9 million s..
At the beginning of the year, a firm has current assets of $327 and current liabilities of $231. At the end of the year, the current assets are $491 and the current liabilities are $271. What is the change in net working capital?
Schultz Industries is considering the purchase of Arras Manufacturing. Arras is currently a supplier for Schultz, and the acquisition would allow Schultz to better control its material supply. Arras currently has 3 million shares of stock outstanding..
David Ortiz Motors has a target capital structure of 45% debt and 55% equity. The yield to maturity on the company's outstanding bonds is 12%, and the company's tax rate is 40%. Ortiz's CFO has calculated the company's WACC as 8.55%. What is the comp..
A Beta factor represents risk in a financial instrument or commodity. Explain the reasons for changes in beta and explain if one should be more concerned with a negative versus positive factor. Be sure to reference volatility. Please provide an examp..
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