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Beryl’s Iced Tea currently rents a bottling machine for $54,000 per year, including a maintenance expenses. It is considering purchasing a machine instead, and is comparing two options:
a. Purchase the machine it is currently renting for $160,000. This machine will require $20,000 per year in ongoing maintenance expenses.
b. Purchase a new, more advanced machine for $260,000. This machine will require $20,000 per year in ongoing maintenance expenses and will lower bottling costs by $11,000 per year. Also, $40,000 will be spent upfront in training the new operators of the machine. Suppose the appropriate discount rate is 8% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the rental of the machine. Assume also that the machines will be depreciated via the straight-line method over seven years and that they have a 10-year life with a negligible salvage value. The marginal corporate tax rate i 35%. Should Beryl’s Iced Tea continue to rent, purchase its current machine, or purchase the advanced machine?
Suppose you invest $ 2,026 today to start a business. In 4 years you hope to sell this company for $ 8,865. What would be your annualized rate of return? Assume that, starting next year, you put $ 662 into a savings account that pays 9 % interest eve..
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Consolidated Pasta is currently expected to pay annual dividends of $10 a share in perpetuity on the 2.2 million shares that are outstanding. Shareholders require a 8% rate of return from Consolidated stock. What will be the total present value of di..
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Using fair value accounting for goodwill, under FAS 141R, determine the amount of Goodwill that "the acquiring company" enters on its balance sheet in the following situation: Oxford Corporation is acquiring the target Bickley, Inc. in a merger. Both..
A friend says that she expects to earn 13.50% on her portfolio with a beta of 2.00. You have a two- asset portfolio including stock X and a risk free security. The expected return of stock X is 11.00% and the beta is 1.10. The expected return on the ..
A financial analyst tells you that investing in stocks will allow you to double your money in 7 years. What annual rate of return is the analyst assuming you can earn?
after deciding to buy a new car you can either lease the car or purchase it with three-year loan. the car you wish to
Consolidated now decides to increase next year’s dividend to $20 a share, without changing its investment or borrowing plans. Thereafter the company will revert to its policy of distributing $10 million a year. a. What will be the total present value..
A firm has the balance sheet accounts, common stock, and paid-in capital in excess of par, with values of $40,000 and $500,000, respectively. The firm has 40,000 common shares outstanding. If the firm had a par value of $1, the stock originally sold ..
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