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An office building and its equipment are insured to $7,100,000. The present annual insurance premium is $0.85 per $100 of coverage. A sprinkler system with an estimated life of 20 years and no salvage value can be installed for $180,000. Annual maintenance and operating cost is estimated to be $3,600. The premium will be reduced to $0.40 per $100 coverage if the sprinkler system is installed.
a. Find the rate of return if the sprinkler system is installed.
b. With interest at 12%, find the payout period for the sprinkler system.
Parker is looking at a new sausage system with an installed cost of $480,000. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the sausage system can be scrapped for $70,000. The sausage syste..
Assume you import 1 million Euro of computer from Europe from France and you have to make the payment in Euro and pay in September. To hedge against rate uncertainty, you can buy a September option. If you buy the option, on the maturity date, the sp..
It’s the end of the summer and your firm has its annual Family Picnic Day on the Saturday of Labor Day weekend. It is a big event: games for kids, a magician who makes balloon animals, tons of great food, kegs of beer, a band for musical entertainmen..
Adams Corporation can raise up to $1700 million for investment from a mixture of debt, preferred stock and retained equity. Above $1700 million, the firm must issue new common stock. Assuming that debt costs and preferred stock costs remain unchanged..
Cayman Corporation just paid a dividend of $4.00 on its common stock. Expectations for growth in earnings are expected to be unusually high over the next 2 years. As such, Cayman expects its dividend to grow at a rate of 30% over the next 2 years aft..
Lee Michaels Jewelers recently issued a $1,000 face, 10 year zero coupon bond. The initial offering sold in January, 2008 for $500. Despite the fact that the bond doesn’t pay interest, the IRS says you must declare the implicit interest for tax purpo..
Which mutually exclusive project should be selected, based on a 12% cost of capital and the following: IRR(A)= 15%, IRR(B)= 13%; incremental IRR(B-A)= 18%? Why?
Thatcher Corporation's bonds will mature in 11 years. The bonds have a face value of $1,000 and an 9% coupon rate, paid semi annually. The price of the bonds is $1,050. The bonds are callable in 5 years at a call price of $1,050. What is their yield ..
Find the assessed value of a home with a market value of $175,000 if the assessed valuation is 35% of the market price. Find the property tax on a home with an assessed value of $85,000 if the property tax rate is $11.25 per $1,000 of the assessed va..
Builtrite Auto has preferred stock shares outstanding that pay an annual dividend of $8 and are currently selling for $86 a share. What is the after-tax cost of preferred stock if the flotation cost for new shares is 5% and Builtrite is in the 34% ma..
Compute the payoff schedule for the call option using the following stock prices, S, and draw a graph of the payoff schedule and Compute the payoff schedule for the call option using the following stock prices, S, and draw a graph of the payoff sched..
Curtis Corporation's noncallable bonds currently sell for $1,165. They have a 15-year maturity, an annual coupon of $95, and a par value of $1,000. What is their yield to maturity?
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