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Your firm is contemplating the purchase of a new $850,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $75,000 at the end of that time. You will save $320,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $105,000 (this is a one-time reduction). Required: If the tax rate is 35 percent, what is the IRR for this project?
A company is looking at replacement equipment. The existing equipment had an original cost of $985 and currently has a book value of $325. If the equipment could be sold for $500, what are the pre-tax gain (loss), the after-tax gain (loss), and the r..
A fundamental basis for successful strategy, whether at the economy level or the company level, is understanding the purpose of an organization. The sole purpose of business is to generate profit for shareholders, as Milton Friedman suggests. The pri..
You own an apartment complex made up of 10 units each of which is rented out at a monthly rent of $1000. You purchased the facility 2 years ago for $1,000,000, and plan to hold the complex for another 8 years at which time you expect to sell the faci..
The efficient set of portfolios
Paisley Company needs a new machine, which it can depreciate completely on a straight-line basis over a period of 4 years. Alternately, it can lease the machine for four years, paying $11,000 in lease payments in advance each year and claiming the ta..
The Mallie Company has planned capital expenditures that total $2,000,000. The Mallie Company wants to maintain a target capital structure that is 35% debt and 65% equity. The Mallie Company forecasts that its net income this year will be $1,800,000...
Many corporations now include “clawback” provisions in their executive compensation packages. These provisions allow them to reclaim the profits obtained by departed executives’ exercise of stock options for five years or more. What is the purpose of..
Nabor industries is considering going public but is unsure of a fair offering price for the company. The firm's CFO has gathered data for performing the valuation using the free cash flow valuation model.
Jiminy’s Cricket Farm issued a bond with 15 years to maturity and a semiannual coupon rate of 10 percent 4 years ago. The bond currently sells for 91 percent of its face value. The company’s tax rate is 38 percent. What is the company’s total book va..
Shock Electronics sells portable heaters for $35 per unit, and the variable cost to produce them is $22. Mr. Amps estimates that the fixed costs are $97,500. 1. Compute the break-even point in units. 2. Fill in the table (in dollars) to illustrate th..
Annieco's last dividend was $1.50 and is expected to grow at a 10% rate per year. The current stock price is $48. What is the current cost of common equity for this company?
Suppose you deposit $2,500 today in a savings account at 3.5% interest compounded annually. Assuming no withdrawal, how much would you have at the end of 10 years? About how many years will it take for $100,000 placed in a bank account at 7% interest..
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