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Replacement Analysis
1. Estimate the economic life of an equipment with an initial cost of $10,000. Cost of maintenance is $1000 at the end of the first year, which is expected to increase by a $1000 each year for subsequent operational years. Consider only maintenance costs and capital recovery in your analysis. Interest rate is 15%
2. A machine has operating costs of $300 annually and a salvage value of $100. A replacement of this would cost $1000 to purchase and its operating cost over a period of t years is given by: M = 200t + 10t2. Without factoring interest rates:
What is the most economic life of the new machine
Should the old machine be replaced with a new one
The Warren Watch Company sells watches for $25, fixed costs are $115,000, and variable costs are $11 per watch. What is the firm's gain or loss at sales of 5,000 watches? Enter loss (if any) as negative value. What is the break-even point (unit sales..
Calculate the difference between the four-year spot rate and the forward rate from time 3 years to time 4 years implied by the information given.
Easton Corporation makes two different boat anchors--a traditional fishing anchor and a high-end yacht anchor--using the same production machinery. The contribution margin of the yacht anchor is three times as high as that of the other product.
Prince Albert Canning PLC had a net loss of £45,831 on sales of £198,352. What was the company’s profit margin? (
It takes Cookie Cutter Modular Homes, Inc., about six days to receive and deposit checks from customers. Cookie Cutter’s management is considering a lockbox system to reduce the firm’s collection times. What is the reduction in outstanding cash balan..
RAK, Inc., has no debt outstanding and a total market value of $200,000. Earnings before interest and taxes, EBIT, are projected to be $26,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 12 percen..
Niko has purchased a brand new machine to produce its High Flight line of shoes. What is the financial break-even point?
Float Simon Corporation has daily cash receipts of $64,000. A recent analysis of its collections indicated that customers’ payments were in the mail an average of 3 days. Once received, the payments are processed in 2.5 days. After payments are depos..
FreddieMac reports that the average rate on a 30-year fixed rate mortgage is 3.92% as of January 2012.
You buy a zero coupon bond at the beginning of the year that has a face value of $1,000, a YTM of 11 percent, and 23 years to maturity. You hold the bond for the entire year. Assume semiannual compounding. How much interest income will you have to de..
What is the net economic gain or loss on the entire option portfolio?
Any bond sold outside the country of the borrower is called an international bond. Foreign bonds and Eurobonds are two important types of international bonds. Foreign bonds are bonds sold by a foreign borrower but denominated in the currency of the c..
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