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Your firm is contemplating the purchase of a new $648,000 computer-based order entry system. The system will be depreciated straight-line to zero over its six-year life. It will be worth $47,000 at the end of that time. You will save $167,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $42,000 at the beginning of the project. Working capital will revert back to normal at the end of the project.
If the tax rate is 30 percent, what is the IRR for this project?
At year-end 2013, Wallace Landscaping’s total assets were $1.8 million and its accounts payable were $450,000. Sales, which in 2013 were $2.1 million, are expected to increase by 20% in 2014. Total assets and accounts payable are proportional to sale..
A hostile takeover is the main method of transferring ownership interest in a corporation. Unlimited liability and limited life are two key advantages of the corporate form over other forms of business organization. A corporation is a legal entity th..
What is the matching principle of working capital financing? What are the benefits of following this principle?
If the interest rate in the United Kingdom is 7 percent, the interest rate in the United States is 8 percent, the spot exchange rate is $1.742/£1, and interest rate parity holds, what must be the one-year forward exchange rate?
Lang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $204,000, has a four-year life, and requires $66,000 in pretax annual operating costs. Calculate the NPV for both conveyor belt sys..
The standard deviation of the market-index portfolio is 20%. Stock A has a beta of 1.5 and a residual standard deviation of 30%. What would make a larger increase in the stock's variance: an increase of .15 in its beta or an increase of 3% (from 30% ..
Winnebagel Corp. currently sells 24,000 motor homes per year at $62,000 each, and 9,000 luxury motor coaches per year at $99,000 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 19,000 of these..
You have estimated the value of a planned project by finding the present value of all the cash inflows from that project. Which of the following would cause the project to look more appealing (have a greater net present value)?
Green Backs Bank wishes to take a position in Treasury bond futures contracts, which currently have a quote of 96-240. Green Backs thinks interest rates will go down over the period of investment. Should the bank go long or short on the futures contr..
Prepare an ending 1998 Income Statement and Balance Sheet from the following information: Sales $800,000; Cost of Goods Sold $300,000; Accounts Receivables $20,000; Bonds Outstanding $160,000; Accounts Payable $20,000; Advertising Expense $1,000; Adm..
If asset A has a standard deviation of .2 and asset B has a standard deviation of .2, then any portfolio that involves positive investment in both asset A and asset B will also have a standard deviation of .2. For most firms, market value leverage is..
A firm has a market value equal to its book value. Currently, the firm has excess cash of $1,400 and other assets of $3,500. Equity is worth $4,900. The firm has 700 shares of stock outstanding and net income of $1,450. The firm has decided to spend ..
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