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Klottier & Walson, Inc. plans to upgrade 1 of the pieces of equipment in its factory.The current equipment has been fully depreciated and does not offer any tax benefits to the company. Although it is still functioning, the equipment's current model is more cost-efficient and breaks much less than previous models. Furthermore, the company feels that the new model will provide a more reliable product for some new customers. By utilizing the model, the company can save money in production and outsourcing costs. The new model costs $150,000 , with an expected life of 5 years. The company expects that the new equipment will cost approximately $1,000 more in utilities than what it now pays. The company will also spend $500 per month for an extended warranty. The new model is more complex and requires hiring someone to program it. The base salary of this new employee will be $36,000, plus applicable payroll taxes and benefits, which add up to be an additional 20% per year. However, the company projects that the new equipment will be much faster, and it would be able to fulfill $75,000 worth of extra orders per year. The management believes that the cost of capital would be 10% and that after the equipment is fully depreciated, the equipment will have 0 value and will be discarded. You have been hired to determine the following: Part 1 • What is the cash flow projection for this equipment, annually, for the next 5 years? • What is the NPV for this project? • What is the IRR for this project? Part 2 • What are the key factors that could be overestimated or underestimated in this project? • What measures can managers take to ensure that the outcome of a capital budget project is positive? o Are these measures ethical? Explain.
The yield to maturity on the new issue will be the same as the yield to maturity on the old issue because the risk and maturity date will be similar.
The firm raises funds in increments of $3,000,000 consisting of $900,000 in debt and $2,100,000 in equity. This strategy maintains the capital structure through $12,000,000. What impact would each of the following have on the marginal cost of capi..
ExxonMobil 20-year bonds pay 6 percent interest annually on a $1,000 par value. If bonds sell at $945, what is the bonds' expected rate of return?
Choose a corporation for analysis that has been profitable for the last three fiscal years, is not a bank or financial institution, and is on a major United State Stock Exchange.
You're the sole owner of Duarte Spring Company; you paid $200K for the business when you acquired the firm five years ago. Duarte is a manufacturer of high-end springs used by major aerospace and aircraft manufacturing companies.
Also, corporate bonds have a 0.25% liquidity premium versus a zero liquidity premium for T-bonds, and the maturity risk premium on both Treasury and corporate 10-year bonds is 1.15%. What is the default risk premium on corporate bonds?
Calculate the charge necessary to recover your cost.
Repeat the process but assume that the second share was purchased for $110 instead of $130. Why do the rates of return differ?
Which of the following statements is NOT a mechanism to reduce the agency problem and motivate managers?
Would you please define the roles of international financial institutions (e.g. IMF, World Bank, ADB, etc.) and describe how they are employed in global financing operations
Sincere Stationery Corporation needs to raise $500,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with a 14 percent annual coupon rate and a 10 year maturity. The investors require a 9 percent rate of retur..
The realized portfolio return is weighted average of the relative weights of securities in the portfolio multiplied by their respective expected returns.
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