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Blanda Incorporated management is considering investing in two alternative production systems. The systems are mutually exclusive, and the cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses a 10 percent discount rate for production system projects. Year System 1 System 2 0 -$12,800 -$42,100 1 12,800 31,400 2 12,800 31,400 3 12,800 31,400 Calculate NPV. (Enter negative amounts using negative sign, e.g. -45.25. Do not round discount factors. Round answers to 2 decimal places, e.g. 15.25.) NPV of System 1 is $ and NPV of System 2 is $ . Which system should the firm invest? The firm should invest in:
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..
If you make quarterly deposits of $585.00 into an ordinary annuity earning an annual interest rate of 6.16%, how much will be in the account after 7 years? How much interest did you earn in those 7 years? How much is in the account after 7 years? How..
Gibson Co. has a current period cash flow of $1.2 million and pays no dividends. The present value of the company’s future cash flows is $20 million. The company is entirely financed with equity and has 800,000 shares outstanding. Assume the dividend..
Which of the following is not an example of the use of a sinking fund?
Suppose the Fed wants to reduce the money supply by $100. - Should it buy or sell government bonds? How much should it buy or sell?
Find the net payment on an equity swap in which party A pays the return on a stock index and party B pays a fixed rate of 6 percent. The notional amount is $10 million. The stock index starts off at 1,000 and is at 1,055.15 at the end of the period. ..
You find a certain stock that had returns of 14 percent, −21 percent, 22 percent, and 11 percent for four of the last five years. The average return of the stock over this period was 9.40 percent. What was the stock’s return for the missing year? Wha..
For the most recent year, Seether, Inc., had sales of $451,000, cost of goods sold of $218,000, depreciation expense of $57,700, and additions to retained earnings of $49,900. The firm currently has 36,000 shares of common stock outstanding, and the ..
Danielle Salomon invests in a 10-year ordinary annuity for a graduation present. She contacts her bank and tells them to open an account and automatically deposit $500 at the end of the first 5 years, and $1000 at the end of the remaining 5 years.
Provide financial evidence that the company is earning economic rents.
It takes Cookie Cutter Modular Homes, Inc., about six days to receive and deposit checks from customers. Cookie Cutter’s management is considering a lockbox system to reduce the firm’s collection times. What is the reduction in outstanding cash balan..
Financial Leverage increases expected ROE and ROI as well as their variability. Discount cash flow valuation views a business as if it were a large capital expenditure opportunity. Net Present value is the present value of cash inflows less the futur..
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