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CSM Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $492,000 is estimated to result in $191,000 in annual pretax cost savings. The press falls in the MACRS five-year class (MACRS Table), and it will have a salvage value at the end of the project of $58,500. The press also requires an initial investment in spare parts inventory of $21,700, along with an additional $3,700 in inventory for each succeeding year of the project. The shop's tax rate is 30 percent and its discount rate is 12 percent. What is the NPV?
The real risk-free rate is 2%. Inflation is expected to be 3% this year, 4% next year, and then 3.5% thereafter. The maturity risk premium is estimated to be 0.0005 × (t -1), where t = number of years to maturity.
The company's financial institution has offered a borrowing rate (cost of borrowing) of Prime + 2% and the co`s tax rate is 35%. The company can lease the equipment for $825,000 a year for four years
The common stock currently sells for $37 per share and has a beta of 1.45, and the bonds have 15 years to maturity and sell for 118 percent of par. The market risk premium is 7.7 percent, T-bills are yielding 4 percent,
A survey on British Social Attitudes asked respondents if they had ever boycotted goods for ethical reasons (Statesman, January 28, 2008). The survey found that 21% of the respondents have boycotted goods for ethical reasons.
Monicaclinton Ltd., a wholesale importer, is in the process of issuing $6,000,000 of 12% coupon debt with a maturity of 5 years. A sinking fund must be established to retire 60% of the issue prior to maturity.
Consider a 30-year mortgage at an interest rate of 12% compounded monthly with a $900 monthly payment. What is the total amount paid in interest
What is the semiannual payment to finance $200,000 in a sinking fund that pays 12% annual interest. Also, calculate the total deposits of the sinking fund and the interest earned by the semiannual payment.
The Good Life Insurance Co. wants to sell you an annuity which will pay you $640 per quarter for 25 years. You want to earn a minimum rate of return of 4.9 percent.
For 2012, Everyday Electronics reported $22.5 million of sales and $18 million of operating costs (including depreciation). The company has $15 million of investor-supplied operating capital.
FarCry Industries, a maker of telecommunications equipment, has 3 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 10,000 bonds.
A Treasury bond that matures in 10 years has a yield of 6%. A 10-year corporate bond has a yield of 9%. Assume that the liquidity premium on the corporate bond is 0.5%.
A straddle occurs when an investor purchases both a call option and a put option. Such a strategy makes sense when the individual expects a major price movement but it is uncertain as to the direction.
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