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You bought a survey device at $720,000 at beginning of year 1. You expect to use it to generate an annual revenue of $400,000 for year 1 and increase at 5% per year. The operating expenses will be $ 165,000 for year 1 and increase at 3% per year. At end of year 3, you can sell the device for $310,000 and close the business. Assuming you will have an income tax rate of 30% every year and a capital gain tax rate of 15% at year 3 and you will take depreciation charge every year based on the MACRS schedule as follows: Year 1 20% Year 2 32% Year 3 19.2% Part 1 Assuming all cash investment and using a MARR of 16%, what is the Net Present Value of this 3-year business and what is the IRR? Show the results as formatted below: 1 2 3 Revenue Operating Expense EBITDA Depreciation Charge Taxable Income Tax @30% tax rate Net Income CFAT Also clearly show the calculations of each year’s Depreciation Charges, Cash Flow After Tax at Year 3 for selling of the device and calculations of the present value and IRR, separately. Part 2 Assuming you will obtain a bank loan of $450,000 at an interest rate of 6.5% per year. The loan requires interest payment only at end of each year and the loan principle is due at end of the 3rd year (like a bond arrangement). Everything else stays the same as Part 1. Re-calculate everything as you did in Part 1. Based on the result of Part 2 and an Incremental IRR analysis, make your recommendation as which way to go, Part 1 or Part 2, and explain how does financial leverage affect your decision in relation to the selection of this project?
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Suppose that in addition to $16.85 million of taxable income, Texas Taco, Inc., received $9,200,000 of interest on state-issued bonds and $820,000 of dividends on common stock it owns in Arizona Taco, Inc. Use the tax schedule in Table 2.3 to calcula..
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We discussed technical analysis as part of our forecasting chapter. explain how self fulfilling prophesies become predictive of future exchange rates.
The income and expense statement examines your financial:
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You own a stock portfolio invested 15 percent in Stock Q, 33 percent in Stock R, 40 percent in Stock S, and 12 percent in Stock T. The betas for these four stocks are 1.4, .5, 1.5, and .8, respectively. What is the portfolio beta?
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