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Pilot Plus Pens is deciding when to replace its old machine. The machine's current salvage value is $2.32 million. Its current book value is $1.52 million. If not sold, the old machine will require maintenance costs of $857,000 at the end of the year for the next five years. Depreciation on the old machine is $304,000 per year. At the end of five years, it will have a salvage value of $132,000 and a book value of $0. A replacement machine costs $4.42 million now and requires maintenance costs of $342,000 at the end of each year during its economic life of five years. At the end of the five years, the new machine will have a salvage value of $812,000. It will be fully depreciated by the straight-line method. In five years a replacement machine will cost $3,320,000. The company will need to purchase this machine regardless of what choice it makes today. The corporate tax rate is 35 percent and the appropriate discount rate is 7 percent. The company is assumed to earn sufficient revenues to generate tax shields from depreciation.
Calculate the NPV for the new and old machines. (Enter your answers in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Your stock portfolio consists of only two stocks. You have $115,000 in Company A and $125,000 in Company B. Company A has an actual return of -8%, and Company B has a return of 12%. What is the return on your portfolio?
What is the importance of interest rates in both Bond and Stock Analyses?
If the relevant tax rate is 35 percent, what is the aftertax cash flow from the sale of this asset?
The payments are expected to go on indefinitely and the interest rate is 12%. What is the value of the growing perpetuity?
what would be the target mortgage payment given that they have an auto loan payment of $325/month and a student loan of $300/month?
There are three types of hedges that a firm can use to protect itself against transaction exposure. Choose one of them and explain it. Give an example as well to illustrate.
what will be the increase in his federal income tax?
Your bank has made a prime customer a 2-year fixed-rate loan at 5%. what is the effective loan rate after you make the loan and add the swap?
Calculate the current price and duration of each bond. Calculate the shares of Bonds 1 and 3 in an optimal immunized portfolio.
You’ve observed the following returns on Barnett Corporation’s stock over the past five years: –29.4 percent, 16.6 percent, 36.2 percent, 3.8 percent, and 22.8 percent. What was the variance of the returns over this period?
Create Spreadsheet on excel Content Video games direct is modeling out the next 5 years of revenues, expenses and profits based on the following assumptions: Revenue = $100,000 in year 1 and expected to grow 10%/year through year 5 Expenses = $50,000..
The Quilt Shoppe is an all equity firm that has 2,500 shares of stock outstanding at a market price of $20 a share. Company management has decided to issue $10,000 worth of debt and use the funds to repurchase shares of the outstanding stock. The int..
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