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As a financial analyst for a large metropolitan area's transportation authority, you and the information technology department come up with a new system in which drivers will no longer have to stop to pay tolls, and will instead use tags in cars that are read by antennae at toll plazas, which charge drivers’ accounts. The initial investment in the necessary equipment to set up the new system will cost your authority $4.1 million. This equipment is expected to last 12 years. It is also expected that it will cost $230,000 per year in the first year to maintain the system, and this amount is expected to increase by 5 percent every year. You expect that the system will generate $560,000 in cash inflows from increased activity at toll plazas and contracts with outside vendors. This cash inflow is expected to increase by 6percent each year. Your cost of capital is 5%. What capital budgeting technique should you use to analyze this project? Should you undertake the project?
Why or why not? What if your cost of capital is 6%? Should you pursue it then? Again, why or why not?
Consider a one year, 7% coupon bond with a par value of $1000 issued by a private corporation. The one year risk-free rate is 9%. The corporation has hit on hard times and the consensus is that there is a 30% probability that it will default on its b..
Buckeye Corp. is currently an all-equity firm with a market value of equity of $100 million. The current expected return on Buckeye's equity is 20%. Buckeye is planning on issuing $50 million in debt with an interest rate of 8% and using the cash to ..
How much must this cost of capital estimate deviate to change the decision? How long must development last to change the decision?
What is the most you would pay for this bond
Compare and contrast the effects of dividends vs. stock repurchases, the pros and cons of each, and how the managers decide between the two.
A defined benefit pension plan has expected payouts of $15 million per year for eight years and then $20 million per year over the following 15 years. Actuaries have estimated that the fund can be expected to earn an average of 5.25 percent on its as..
A project requires an initial investment of $200,000 and expects to produce a cash flow before taxes of 120,000 per year for two years (i.e., cash flows will occur at t = 1 and t = 2). The corporate tax rate is 30%. The assets will depreciate using t..
Prepare a Schedule of Collections and Payments for the six month period beginning in March, using the template provided and the data above.
Corporation Growth has $87,000 in taxable income, and Corporation Income has $8,700,000 in taxable income. Use the tax rates from Table 2.3. (Do not round intermediate calculations.). What is the tax bill for each firm? Firms Taxes Corporation Growth..
Was it a good decision to increase advertising expenses? Suppose that the contribution margin ratio is now 0.4. Would it be a good decision to increase advertising expenses?
Did you ever stop to think about the importance of the finance function for a successful, multinational company (i.e, McDonalds, Apple, Johnson & Johnson, etc)? Someone has to manage the cash flow, bank relations, payroll, purchases of plant and equi..
Calculate NPV for each computer over its life. Rank the computers in descending order, based on NPV.- Use the equivalent annual cost (EAC) method to evaluate and rank the computers in descending order, based on EAC.
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