Reference no: EM1312926
Explain Capital budgeting involves calculation of NPV, IRR, Payback period
1. If the required return is greater than the coupon rate, a bond will sell at:
a. Par b. A discount c. A premium d. Book value
2. XYZ Co. is considering the purchase of a new machine. The machine will cost $250,000 and requires installation costs of $25,000. The existing machine can be sold currently for $25,070. It was purchased three years ago for $83,000 and depreciated using MACRS. It can be operated for another four years. Its market value at that time, if sold, would be $14,000. The new machine has expected life of five years and expected to provide operating cash savings of $88,000 a year for 2 years and $50,000 a year for the next two years before depreciation and taxes (EBD&T). After four years the new machine can be sold for $12,750. To support the increased business resulting from the purchase of new machine, A/R will increase by $12,000; inventory will increase by $25,000 and current liabilities by $41,000. The cost of capital is 17% and the tax rate is 40%.
Determine the Initial Investment (II)
Determine the Payback Period (PP)
Determine the NPV, IRR and MIRR
Make a recommendation to accept or reject the new investment.
3. Recently, Ohio Hospitals filed for bankruptcy. The firm was reorganized as American Hospitals, Inc., and the court permitted a new indenture on an outstanding bond issue to be put into effect. The issue has 10 years to maturity and coupon rate of 10 percent (I = $100) paid annually. The new agreement allows the firm to pay no interest for the first 5 years, then to resume interest payments for the next five years, and at maturity in 10 years, to repay the principal plus the interest that was not paid for the first five years, but without paying "interest on the deferred interest." If the required rate of return is 20 percent, what should the bonds sell for in market today?
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Consumption-investment-government purchases
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Momentum and collision
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Descrete distribution introduction
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Effect on the stockholders equity
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Explain capital budgeting involves calculation of npv
: Explain Capital budgeting involves calculation of IRR, NPV, Payback period and If the required return is greater than the coupon rate
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What amount of gain or loss did merton record
: What amount of gain or loss did Merton record when it sold the building? What amount of gain or loss would have been reported if the pollution-control equipment had been expensed in 2009?
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Describe why the cost of the pollution-control equipment
: Describe why the cost of the pollution-control equipment was not expensed in 2007. What conditions would have allowed Merton to expense the equipment? If Merton has a choice, would it prefer to expense or capitalize the equipment?
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Evaluate the amount of depreciation
: Disclosure of depreciation expense in income statement - Evaluate the amount of depreciation that should be reflected on the income statement for 2006 and 2007.
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Computation of npv using the given financial ratios
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