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The McEnally Toy Corporation currently uses an injection molding machine that was purchased 2 years ago for $8,000. This machine is being depreciated on a straight line basis, and it has 4 years of remaining depreciable life and 6 years of remaining useful life. The estimated market value for the machine at the end of its useful life is $0. Richard McEnally is confident, however, that the machine could be sold today for $4,000. The firm is considering a replacement machine that will cost of $8,000, last (and be depreciated over) 6 years, and have a market value of $800 at the end of its useful life. The replacement machine would permit an output expansion, so sales will be $1,000 higher (than with the old machine) each year for six years. In addition, due to the proposed machine's much greater efficiency, operating expenses will be $1,500 less (than with the old machine) in each year. The new machine would require that inventories be increased from today's level of $40,000 to $45,000 at the end of year 1, $50,000 at the end of year 2, $52,000 at the end of years 3-5, and back down to $40,000 at the end of year 6. The firm's marginal federal-plus-state tax rate is 40 percent, and its cost of capital is 15 percent. Should McEnally replace the old machine? Provide a numerical solution.
If the exchange rate between dollars and pesos is pesos 8/$ and between dollars and pounds is $1.50/ pounds then what is the pound/peso exchange rate.
The lease agreement qualifies as a capital lease and calls for Blue to make semiannual lease payments of $281,454 over a three-year lease term,
A 25-year maturity bond with face value of $1,000 makes semiannual coupon payments and has a coupon rate of 8%. a. What is the bond’s yield to maturity if the bond is selling for $1,010? Enter annual yield to maturity as your answer. b. What is the b..
A pension plan is obligated to make disbursements of $2.7 million, $3.7 million, and $2.7 million at the end of each of the next three years, respectively. Find the duration of the plan's obligations if the interest rate is 10% annually.
Audits of financial statements are designed to determine whether account balances are materially correct. Assume that your client is a manufacturing company that has the following assets on its balance sheet. Describe a substantive audit procedure th..
The Preferred stock of Gator industries sells for $34.55 and pays $2.74 per year in dividends. What is the cost of preferred stock financing? If Gator were to issue 469,000 more preferred shares just like ones it currently has outstanding, it could s..
The McKeegan Corporation has two different bonds currently outstanding. Bond M has a face value of $13,500 and matures in 17 years. The bond makes no payments for the first 5 years, then pays $700 every six months over the subsequent 7 years, and fin..
Six-month T-bills have a nominal rate of 4%, while default-free Japanese bonds that mature in 6 months have a nominal rate of 2%. In the spot exchange market, 1 yen equals $0.005. If interest rate parity holds, what is the 6-month forward exchange ra..
How much will you have in your account at the end of two years? How much is simple interest and how much is compound interest?
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.64 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be w..
A mortgage broker is offering a $289,000 33-year mortgage with a teaser rate. In the first two years of the mortgage, the borrower makes monthly payments on only a 5.5 percent APR interest rate. After the second year, the mortgage interest rate charg..
Great Wall Pizzeria issued 8-year bonds one year ago at a coupon rate of 6.1 percent. If the YTM on these bonds is 7.5 percent, what is the current bond price?
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