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Davis Industries must choose between a gas- powered and an electric-Powered forklift truck for moving materials in its factory. Since both forklifts perform the same function, the firm will choose only one. (they are mutually exclusive investments.) The electric-powered truck will cost more, but it will be less expensive to operate; it will cost $22,000, wheras the gas-powered truck will cost $17,500. The cost of capital that applies to both investments is 12%. The life for both types of truck is estimated to be 6 years, during which time the net cash flows for the electric-powered truck will be$6,290 per year and those for the gas-powered truck will be $5,000 per year. Annual net cash flows include depreciation expenses. Calculate the NPV and IRR for each type of truck, and decide which to recommend.
Please show the equation on how to work this as well as how to put it in the financial calculator if needed.
Which of the following is NOT a typical capital budgeting decision?
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An investment company recently issued convertible bonds with a $1,000 par value. The bonds have a conversion price of $25 a share. At the time of issue, the company's underlying stock price is $20. Calculate the convertible issue's conversion ratio?
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The purpose of this final case is to put together the tools of corporate finance that we have covered in this course.
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A risk-free bond which matures in 1 year has a face value of $200, the real interest rate is 5% and the expected inflation rate is 2%. What will the price of this bond be today? A risk-free bond which matures in 1 year has a price today of $350 and t..
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