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HT Tool Co is considering the purchase of a new CNC machine. This project is not expected to change sales, but should save the firm in labor costs. The labor savings is expected to be $46,000 (before tax). The machine costs $110,000. It will require $14,000 in modifications to support the needs of HT Tool. An increase in inventory (net working capital) of $6,500 will be necessary. ? The machine will be depreciated using MACRS with a 3-year class life (half-year convention). ? The firm’s tax rate is 35%. ? The plan is to sell the machine after 3 years and the expected selling price then is estimated at $65,000. ? The hurdle rate for this project is 11% Begin with a blank worksheet and show your setup: a. What is the initial investment of this project? (Year 0 net cash flow). b. What are the net operating cash flows for years 1, 2, and 3? c. What is the terminal (NOT operating) cash flow in year 3? d. What are the NPV and IRR for this project? e. Should be accepted?
You are given the following information concerning a stock and the market: Returns Year Market Stock 2008 15 % 27 % 2009 14 30 2010 15 6 2011 –14 –24 2012 37 16 2013 15 25 1. Calculate the average return and standard deviation for the market and the ..
Compute the net present value of each project. Which project should be adopted based on the net present value approach?
A bond is currently selling for a price greater than face value. If the bond’s yield to maturity remains constant, which of the following statements is most correct:
What equal monthly deposit should be made into this annuity in order to have $ 133,000 in 8 years?
Letang Corporation expects an EBIT of $22,500 every year forever. The company currently has no debt, and its cost of equity is 13.5 percent. The company can borrow at 9 percent and the corporate tax rate is 38. What is the current value of the compan..
On the following loan, what is the best estimate of the effective borrowing cost if the loan is prepaid in six years?
One-year Treasury bills currently earn 1.70 percent. You expect that one year from now, 1-year Treasury bill rates will increase to 1.90 percent. If the unbiased expectations theory is correct, what should the current rate be on 2-year Treasury secur..
What is the yield of return on this investment so far in Julia’s home currency (USD) in one year from now if the exchange rate changes to EUR/USD=0.83?
If Cautionary believes it can generate after-tax cash inflows of $20,000 per year for the next 66 years from the Danger acquisition,
Leasing Comment on the following remarks: Leasing reduces risk and can reduce a firm’s cost of capital. Leasing provides 100 percent financing. If the tax advantages of leasing were eliminated, leasing would disappear.
What is the bond's current yield. What is the bond's yield to maturity.
A firm manufactures and sells high quality printers and toners. Each printer sells for $790 and each toner for $70. The average user keeps the printer for 5 years and consumes 4 toners every year. Using rate of return analysis to determine if a user ..
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