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The Pre-Tech Company is currently considering the purchase of some new machinery. The machinery will have a useful life-time of 9 years and will cost $ 600,000 to be paid in the current period. If it decides to purchase it, the company expects that the new machinery will generate an initial cash flow of $100 000 one year from now. The cash flow is expected to grow at the rate of 4% per year for years 2 through 4, but then to decline at the rate of 2% per year for years 5 through 9 at which time the machinery will be scrapped. (Assume that the scrap value is zero.) The appropriate discount rate for this project is 16%. Is this project worth undertaking? Draw the timeline. Show your work.
Prepare the journal entries through June 30, 2011, to record the investment in notes, interest, and necessary adjustments for changes in fair value.
Fredrickson Corp. has $10 million of 5% bonds outstanding. Assume that all of the MM assumption is met, and the firm is subject to a 38% federal-plus-state corporate tax rate. The firm has an EBIT of $1.5 million, and the unlevered cost of equity is ..
A 5-year maturity 6% coupon rate bond is selling to yield 8%. The bond pays interest semi-annually. One year later, interest rates decrease from 8% to 5%. Par = 1,000. What is the current price of the 5-year maturity 6% coupon bond selling to yield 8..
GTB, Inc., has a 20 percent tax rate and has $86,196,000 in assets, currently financed entirely with equity. Equity is worth $6 per share, and book value of equity is equal to market value of equity. What will be the break-even level of EBIT?
Suppose that it is financed by a combination of common stock and $1.08 million of debt. The interest rate on the debt is 9%, and the corporate tax rate is 35%. How much profit is available for common stockholders after payment of interest and corpora..
Jackson Central has a 6-year, 8% annual coupon bond with a $1,000 par value. Earls Enterprises has a 12-year, 8% annual coupon bond with a $1,000 par value. Both bonds currently have a yield to maturity of 6%. Which of these two bonds should you buy ..
There has been a new surge of mergers and acquisitions (M and A) in the last several years. Why is this? In the past, why have so many not been successful? In your opinion, what are the most important factors to be taken into account for a successful..
What is the option in a callable agency bond? What impact does the call deferment period have on a callable bond's promised yield? What is the primary advantage of a discount callable bond versus one trading at par?
Stock A has an expected return of 12% and a standard deviation of 11.7%, and Stock B has an expected return of 20% and a standard deviation of 24.2%. The correlation coefficient between the two stock is -0.4. In order to produce the minimum risk port..
The older bonds have a face value of $100,000 each and pay 18% in semi-annual instalments. They have an early call provision for a 5% premium over face value. The bonds were sold 8 years ago and have a 12-year term.
According to the spending multiplier for a small open economy, by how much will domestic product and income increase?
Lloyd Blankfein would like to supplement his low pension paid by his employer Goldman Sacks. His personal banker Jamie Dimon told him that he could pay $1,000 every month for ten years (making 10 × 12 = 120 payments at the end of each month until her..
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