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Garcia’s Truckin’ Inc. is considering the purchase of a new production machine for $200,000. The purchase of this machine will result in an increase in earnings before interest and taxes of $50,000 per year. To operate this machine properly, workers would have to go through a brief training session that would cost $5,000 after tax. In addition, it would cost $5,000 after tax to install this machine properly. Also, because this machine is extremely efficient, its purchase would necessitate an increase in inventory of $20,000. This machine has an expected life of 10 years, after which it will have no salvage value. Finally, to purchase the new machine, it appears that the firm would have to borrow $100,000 at 8 percent interest from its local banks, resulting in additional interest payments of $8,000 per year. Assume simplified straight-line depreciation and that this machine is being depreciated down to zero, a 34 percent marginal tax, and a required rate of return of 10 percent. (a) What is the initial outlay associated with this project? (b) What are the annual after-tax cash flows associated with this project for years 1 through 9? (c) What is the terminal cash flow in year 10 (what is the annual after-tax cash flow in year 10 plus any additional cash flows associated with termination of the project)? (d) Should the machine be purchased?
What is the unlevered cost of equity for a firm composed of 50% debt and 50% equity, a Wacc of 14% and a cost of debt of 8%. the tax rate of 39%
Compute the gross profit margin ratio, the return on equity and the return on assets, rounding calculations to two decimal places and does the firm have positive or negative financial leverage? Briefly explain.
Finalize and submit a 10- to 15-page paper that summarizes Riordan Manufacturing's financial state. Include what should be included in the accounting systems, and the systems that should be connected to the accounting system
The Bell Weather Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 19 percent a year for the next 4 years and then decreasing the growth rate to 3 percent per year. The company just paid its..
Calculate the projected cash flows - maximize NPV which project should it undertake - Calculate the projected cash flows.
Analyzing a firm’s financial position is essential for those in charge to make their plans as you have mentioned. It is not clear how the ratios can work to the advantage of the firm or against the firm. You have also not derived how these ratios can..
An automobile parts manufacturer is evaluating an investment in a new machining tool that could revolutionize its operations, cutting operating costs significantly. Operating costs would fall by $25,000 per year for 5 years. The company is a small fa..
Discuss how the portfolio beta compares to your own willingness to take risks. Discuss whether you would rather hold an individual stock or a portfolio of stocks. please properly cite your work.
In 2012, an employee was granted 305 options on the stock of a firm with an exercise price of $20 per option. In 2013, after the options had vested and when the stock was trading at $35 per share, she exercised the option. The firm's income tax rate ..
The common stock and debt of Northern Sludge are valued at $60 million and $40 million, respectively. Investors currently require a 17.0% return on the common stock and a 7.0% return on the debt.
Estimate the historical standard deviation of google and compare the implied standard deviation with the historical standard deviation.
Dye Trucking raised $280 million in new debt and used this to buy back stock. After the recap, Dye's stock price is $7.75. If Dye had 45 million shares of stock before the recap, how many shares does it have after the recap?
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