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Suppose you need to decide whether to keep an old machine or replace it with a new one:
New machine: If you decide to replace the old machine with a new one, it requires capital cost of $1,000,000 in year zero (and zero salvage value for the old machine). Capital cost is depreciable from year 1 to year 8 (over eight years) based on MACRS 7-year life depreciation with the half year convention (table A-1 at IRS). The new machine can produce income of $450,000 and operating cost of $150,000 per year for 8 years (from year 1 to year 8) and it will have salvage value of 200,000 at the end (with zero book value).
Old machine: Old machine can operate only until year 5 with the revenue and operating cost of $350,000 and $200,000 per year (from year 0 to year 5). Old machine will have zero salvage value.
Note that the old machine is already in place and operating. However, installing the new machine takes one year and revenue starts from year 1.
Consider income tax of 40% and minimum rate of return 10%. Construct incremental analysis and conclude which alternative is more economically satisfactory? Please show your work.
Explain the concept of transaction exposure and the best techniques to hedge against further exposure of exchange rates.
Which one of the following situations would increase the likelihood that ABC would call its outstanding callable bonds?
Bat's product manager is under pressure to increase market share, but is uncertain about how to make the product more competitive. The product is reasonably well-positioned in the Thrift segment and enjoys relatively high awareness and accessibility...
You have a $6,000,000 portfolio that has a beta of 2.4 to the S&P 500. You have decided you want to hedge this portfolio over the next 12 months. The 13-month S&P 500 futures price is $2300, and the current S&P 500 index value is $2250. What position..
Evaluate the type of impact the violation had on the organization then determine two (2) ways the organization could mitigate the issue. Justify your response.
Assume that the price of real estate is determined by P=PV(all cash flows generated by the real estate). After you have graduated you work for some years and can save some money. If discount rate is 1% lower than 3.5% what is the price of the house? ..
If they would like to earn 23% per unit, at what price should they sell the bicycles?
Firm Valuation Happy Times, Inc., wants to expand its party stores into the Southeast.
Refer to Lancaster Engineering Inc. (LEI) information below, what is LEI’s weighted average cost of capital (WACC)? LEI’s corporate income tax rate is 40%. Investors expect LEI’s dividend to grow at a constant rate of 9% in the future. LEI has just p..
Hadley wants to retire in 15 years, and he wants to have an annuity of $50,000 a year for 10 years after retirement. Hadley wants to receive the first annuity payment the day he retires. Using an interest rate of 8%, how much must Hadley invest today..
what is the most you would be willing to pay for a share of Boeing’s common stock?
Cheeseburger and Taco Company purchases 11,287 boxes of cheese each year. It costs $24 to place and ship each order and $8.83 per year for each box held as inventory. The company is using Economic Order Quantity model in placing the orders. Calculate..
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