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A firm is considering an investment in a new machine with a price of $18.07 million to replace its existing machine. The current machine has a book value of $6.07 million and a market value of $4.57 million. The new machine is expected to have a four-year life, and the old machine has four years left in which it can be used. If the firm replaces the old machine with the new machine, it expects to save $6.77 million in operating costs each year over the next four years. Both machines will have no salvage value in four years. If the firm purchases the new machine, it will also need an investment of $257,000 in net working capital. The required return on the investment is 10 percent, and the tax rate is 40 percent. Assume the company uses straight-line depreciation. What is the NPV of the decision to purchase a new machine? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) NPV $ What is the IRR of the decision to purchase a new machine? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) IRR % What is the NPV of the decision to keep the old machine? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. A negative answer should be indicated by a minus sign.) NPV $ What is the IRR of the decision to keep the old machine? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. A negative answer should be indicated by a minus sign.) IRR %
Dinklage Corp. has 4 million shares of common stock outstanding. The current share price is $76, and the book value per share is $5. The company also has two bond issues outstanding. The first bond issue has a face value of $90 million, a coupon of 5..
You have been asked to calculate the cost of capital for a company with the following information. The company has $7,500,000 in face value bonds, trading at 96.5% of face value. The YTM on these bonds is 5.75%. The equity beta is 1.75, the expected ..
You have just started to work as the HR person at a carpet store. The owner has called you into her office and asked you to come up with a system of pay raises for all the employees. She has given you a budget of $15,000 for these raises. There are 2..
On February 3, 2010, the Burlington Western Company plans a commercial paper issue of $20 million. The firm has never used commercial paper before but has been assured by the firm placing the issue that it will have no difficulty raising the funds. W..
You want to have $2 million in real dollars in an account when you retire in 40 years. The nominal return on your investment is 10 percent and the inflation rate is 3.8 percent. What real amount must you deposit each year to achieve your goal?
Big sky mining company must install 1.5 million of new machinery in its Nevada mine. it can obtain a bank loan for 100% of the purchase price, or it can lease the machinery. assume that the following facts apply. under either the lease or the purchas..
Identify and briefly describe each of the following types of bonds. What type of investor do you think would be most attracted to each?
If the market yield is 18% p.a. compounding semi-annually, how much did you spend?
A corporation with very high growth prospects and many positive NPV projects to fund may want to increase its dividend based on the: A. very low agency costs of corporation B. information effect C. tax bias against capital gains D. residual dividend ..
FSU Trust asks you to evaluate the proposed acquisition of Winery Apartments. The price is $6,750,000. The apartment falls into the MACRS 5-year class and would be sold for $7,500,000 after the depreciation. What is the net cost of this acquisition? ..
Here are data on two companies. The T-bill rate is 5.8% and the market risk premium is 8.9%. Company $1 Discount Store Everything $5 Forecast return 16% 15% Standard deviation of returns 28% 30% Beta 1.3 1 What would be the fair return for each compa..
A stock has a beta of 1.12, an expected return of 10.22 percent, and lies on the security market line. A risk-free asset is yielding 3.51 percent. Ferghus wants to create a $15,000 portfolio that is comprised of these two securities and that will hav..
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