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Warmack Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $440,000 is estimated to result in $175,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a salvage value at the end of the project of $75,000. The press also requires an initial investment in spare parts inventory of $17,000, along with an additional $2,200 in inventory for each succeeding year of the project. The shop’s tax rate is 30 percent and its discount rate is 8 percent. MACRS schedule
Calculate the NPV of this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Chasteen, Inc. is considering an investment with an initial cost of $185,000 that would be depreciated straight-line to a zero book value over the life of the project. The cash inflows generated by the project are estimated at $76,000 for the first t..
Suppose that IBM bonds have a face value of $1,000 and are currently trading in the marketplace today for $1250.14. These bonds are trading at a ______ relative to the _______.
TV’s R Yours is advertising a deal, in which you buy a flat screen TV for $4,769 (including tax) with one year before you need to pay (no interest is incurred if you pay by the end of the one year). How much would you need to deposit at the end of ea..
Portfolio Returns and Deviations Consider the following information about three stocks: Rate of Return if State Occurs State of Probability of Economy State of Economy Stock A Stock B Stock C Boom .30 .20 .25 .60 Normal .45 .15 .11 .05 Bust .25 .01 −..
Bond A has a 5% annual coupon, matures in 3 years and has a $1,000 face value. Bond B has a 6% annual coupon, matures in 3 years and has a $1,000 face value. Calculate the price of each of the three bonds and indicate whether each bond is trading at ..
Scanlin, Inc., is considering a project that will result in initial after tax cash savings of $1.76 million at the end of the first year, and these savings will grow at a rate of 3 percent per year indefinitely. The cost-saving proposal is somewhat r..
As the economy moves through a business cycle, there is a pronounced shift in the size of default risk premiums. Briefly explain the default risk premium changes as we move through the business cycle. Why does it change?
If average daily remittances are $1 million, and "extended disbursement float" adds 10 days to the disbursement schedule, how much should the firm be willing to pay for a cash management system if the firm earns 11% on excess funds.
What do you think the primary motive of issuing debt rather than equity and why would they issue debt while the cash balances are at record levels?
Drawing rights with the International Monetary Fund
Cervetti Corporation has two major business segments-East and West. In July, the East business segment had sales revenues of $230,000, variable expenses of $130,000, and traceable fixed expenses of $30,000. The contribution margin of the West busines..
A company paid $1.65 dividend yesterday. Its dividend growth rate is expected to be constant at 22.40% for 2 years, after which dividends are expected to grow at a rate of 6.85% forever. Its required return (rs) is 10.55%. What is the best estimate o..
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