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Vandalay Industries is trying to choose between two alternative (mutually exclusive) machines. Whichever machine is selected will be utilized for the foreseeable future (in addition, for the foreseeable future, all revenues, costs and expenses are expected to remain unchanged). Machine A costs $2,400,000 and will last (economic life) four years. Variable costs will be 35% of sales, and fixed costs are $180,000 per year. The machine will be depreciated over 3 years, straight line. Sales revenues will be $2,000,000 per year. Machine B costs $3,300,000 and will last (economic) five years. Variable costs will be 30% of sales, and fixed costs are $110,000 per year. The machine will be depreciated over 3 years, straight line. Sales revenues will be $2,000,000 per year. The required return is 10% and the tax rate is 40%. Which machine, if either, should Vandalay Industries select? Be sure to provide quantitative justification for your answer.
With a start-up cost of $2, benefits of $5 per year for one year and an internal rate of return of 150.00%. With a capital budget of $9 and a company wide return on assets of 10%, which of these projects would you undertake? What would your answer be..
How long does it take for an amount to double at annual interest rates, or growth rates, of 4%,6%,8%,12%, 15%, and 20%.?
An unlevered firm has a value of $900 million. An otherwise identical but levered firm has $50 million in debt at a 5% interest rate. Its cost of debt is 5% and its unlevered cost of equity is 12%. After Year 1, free cash flows and tax savings are ex..
Gordon & Co.’s stock has just paid its annual dividend $1.10 per share. Analysts believe that Gordon will maintain its historic dividend growth rate of 3%. If the required return is 8%, what is the expected price of the stock next year?
You purchased 200 shares of a stock for $28.33 a share and sold the shares one year later for $27.16 a share. Over the year, you received a total of $.90 in dividends per share. What was your capital gains yield on this investment?
Assumption: no change in either fiscal or monetary policy, no change in exchange rate expectations, and that price are "sticky". What are the consequences of a sudden loss of confidence on the part of businesses in a country (that adversely affects t..
Use the "percent of sales method" of preparing pro forma financial statements to determine the projection for next year's inventory. Make the following assumptions: current year's sales are $27,800,000; current year's cost of goods sold is $17,528,00..
A cash-or-nothing call pays $10 if the underlying asset price is above the strike at expiration and 0 otherwise. Price the call in terms of sigma, K, S0, r, and T under the Black-Scholes assumptions. An asset-or-nothing call delivers the underlying a..
"Which one of the following statements is correct? The internal rate of return is the most reliable method of analysis for any type of investment decision. The payback method is biased toward short-term projects.
You estimate the following probability distributions of returns for the stock of the Beranek Company: What is the standard deviation, in percentages, of the stock?
Stock R has a beta of 1.1, Stock S has a beta of 0.60, the expected rate of return on an average stock is 8%, and the risk-free rate is 5%. By how much does the required return on the riskier stock exceed the required return on the riskier stock exce..
An audit committee is comprised of several members of the board of directors. The committee acts as the liaison between the independent auditor and the corporation. What is the responsibility of the Audit Committee of the Board of Directors?
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