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Deriving cash flows for asset disposition.
Custom Machining Company (CMC) purchased a made-to-order machine tool for grinding machine parts. The machine costs $160,000, and
CMC installed it yesterday. Today, a vendor offers a machine tool that will do exactly the same work but costs only $80,000. Assume that the cost of capital is 12 percent, that both machines will last five years, that CMC will depreciate both machines on a straight-line basis for tax purposes with no salvage value, that the income tax rate is and will continue to be 40 percent, and that CMC earns sufficient income that it can offset any loss from disposing of or depreciating the ‘‘old’’ machine against other taxable income.
How much, at a minimum, must the ‘‘old’’ machine fetch upon resale at this time to make purchasing the new machine worthwhile?
( I did locate the 'answer' to this in the textbook solution section but am unclear how all the numbers were obtained. I am still unclear how to actually work the problem.)
What types of decisions, other than make-or-buy, discontinuing a business segment, or using a constrained resource, can be analyzed using relevant costs?
Suppose you just won the state lottery, and you have a choice between receiving $2,075,000 today or a 15-year annuity of $300,000, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard taxes.
What are the potential benefits of the domestic securities market to those investing in the foreign securities market and what are some examples
Harper Healthcare Center is undergoing some temporary financial problems. As a result, they borrow $600,000 for nine months at 7 percent interest. How much interest will Wiggins Healthcare Center pay for the loan?
You are looking at an investment that has an effective annual rate of 14.3 percent. What is the effective semiannual return? What is the effective quarterly return? What is the effective monthly return?
(Yield to maturity) The market price is $1,175 for a 16-year bond ($1,000 par value) that pays 9% annual interest, but makes interest payments on a semiannual basis (4.5 % semiannually). What is the bond’s yield to maturity? (Round to 2 decimal place..
Hy-tec Communication has calculated the return on assets (ROA) for one of its projects using a simulation method. By simulating the operations 1,000 times, they obtained an ROA of 16.7 percent and a standard deviation of 6.2. The results of the simul..
what is the firm's required return?
Calculate the IRR for each of the projects. If the discount rate for all three projects is 10 percent, which project or projects would you want to undertake? What is the net present value of each of the projects where the appropriate discount rate is..
FreddieMac reports that the average rate on a 30-year fixed rate mortgage is 3.92% as of January 2012.
Calculate the expected standard deviation on stock:
BDU Co. wants to issue new 19-year bonds for some much-needed expansion projects.
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