Dependable electric power was available from public utility

Assignment Help Financial Management

Reference no: EM131354334

Five years? ago, a company in New Jersey installed a? diesel-electric unit costing $55,000 at a remote site because no dependable electric power was available from a public utility. The company has computed depreciation by the? straight-line method with a useful life of 10 years and a zero salvage value. Annual operation and maintenance expenses are ?$15,000?, and property taxes and insurance cost another $3,300 per year. Dependable electric service is now available at an estimated annual cost of ?$35,000. The company in New Jersey wishes to know whether it would be more economical to dispose of the? diesel-electric unit? now, when it can be sold for ?$45,000?, or to wait five years when the unit would have to be replaced anyway? (with no? MV). The company has an effective income tax rate of 40?% and tries to limit its capital expenditures to opportunities that will earn at least 10?% per year after income taxes. What would you?r ecommend? (Find the AW value for the defender and the challenger)

Reference no: EM131354334

Questions Cloud

Firm has estimated costs of capital for financial securities : Microsoft Engine Co. has the following securities outstanding: i) 1,000 bonds that have 10 years to maturity and pay an annual coupon of 9 percent and $1,000 face value, ii) 2,000 shares of Consols that pays a coupon payment of $50 per year. The firm..

The bond has an annual coupon rate : A $1,000 par-value, fixed coupon bond has 17 years remaining until maturity. The bond has an annual coupon rate of 8 percent and it pays semi-annual coupon payments. If the market annual rate for this bond is 7.25 percent, what is the price of the bo..

What is your best estimate of the company cost of equity : Stock in CDB Industries has a beta of 1.05. The market risk premium is 7 percent, and T-bills are currently yielding 4 percent. CDB’s most recent dividend was $2.90 per share, and dividends are expected to grow at an annual rate of 5 percent indefini..

Collections float and disbursement float : On a typical day,U.C. Stars Vision Center writes $20,000 in checks, which take four days to clear. They receive an average of $30,000 in checks from patients on a daily basis, which take five days to clear. What is U.C.’s disbursement float? What is ..

Dependable electric power was available from public utility : Five years? ago, a company in New Jersey installed a? diesel-electric unit costing $55,000 at a remote site because no dependable electric power was available from a public utility. The company has computed depreciation by the? straight-line method w..

Analyzing the cost of debt for firm : You are analyzing the cost of debt for a firm. You know that the firm’s 14-year maturity, 8.2 percent coupon bonds are selling at a price of $776.45. The bonds pay interest semiannually. If these bonds are the only debt outstanding for the firm, answ..

What is the minimum dollar amount of new common stock : What is the minimum dollar amount of new common stock the company would have to issue in order to meet all of its objectives? You are helping Selena Gomez with another one of her business projects, this time with funding the capital budget. She forec..

Positions in options in order to achieve payoffs : Suppose you take a position in options that guarantees you the following payoffs (excluding price/premia of the options): Payoff = zero if underlying asset is less than or equal to $18 at maturity date Payoff = asset price minus $18 if asset price gr..

Quoted today should be equal to the spot rate in the future : Most major countries in the world have agreed on fixed exchange rates in order to facilitate international trade. The forward exchange rate quoted today should be equal to the spot rate in the future.

User Account

All Pages