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Downhill Pizza, located near the Sugarloaf ski area, makes Tuscan style “homemade” pizza which it freezes and distributes throughout the northeast. It is considering a new more efficient pizza oven with a larger capacity. The installed cost will be $350,000. This cost will be depreciated straight line over its five year life to a zero salvage value as determined by the IRS (there is no half-year convention with straight line depreciation). However, the firm plans to sell the oven in four years (at t = 4) for $80,000. The oven will save the firm $130,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $28,000 which will be returned to the firm at the end of the project (at t=4). There are no other net working capital changes. If the tax rate is 28% and the project discount rate is 14%, what is the NPV of this project?
If the portfolio you manage is holding $25 million of 6s of 2032 Treasury bonds with a price of 110, what forward contract would you enter into to hedge the interest-rate risk on these bonds over the coming year?
Recalculate the NPV assuming the machine press can only be sold for $45,000 at the end of year four. Does this change have an impact on their decision?
A firm expects to increase its annual dividend by 20 percent per year for the next two years and by 15 percent per year for the following two years. After that, the company plans to pay a constant annual dividend of $3 a share. The last dividend paid..
Which of the following techniques is(are) used to monitor a business's receivables?
Pet Food Company bonds pay an annual coupon rate of 7.92 percent. Coupon payments are paid semiannually. Bonds have 14 years to maturity and par value of $1,000. Compute the value of Pet Food Company bonds if the market interest rate on this type of ..
This theory states that exchange rates will adjust so that an iPad6 costs the same amount in England and Tokyo.
Smithfield Diagnostic Laboratory has taken out a short-term payable to finance the purchase of a new testing machine. The amount borrowed is $40,000, and the note carries an annual interest rate of 12%. Smithfield will make equal payments every month..
US Bank has purchased a 7 million one-year Canadian dollar loan that pays 8.5% interest annually. The spot rate of U.S. dollars for Canadian dollars is 0.70. What is the deposit amount in Euros? What is the interest expense in dollars?
Use risk-neutral valuation to calculate the price of the security at time t in terms of the stock price S at time t.- Confirm that your price satisfies the differential equation.
A business buys a vehicle for $6,000, uses it for 5 years, and salvages it for $1,000. The annual cost of operating the vehicle was $900. Maintenance costs are $200 for the first year and increase at a 8% annual compounded rate. The business uses an ..
The management of Casilla Manufacturing Company (CMC) has decided to invest in a new robotic system to increase the productivity of the company. The company has enough money to invest in one system, and has narrowed the choice down to Asea System and..
Mary Smith wants to buy a property for $250,000 and obtains an 80 percent loan. This loan can be obtained for 25 years at 5.75 percent interest (monthly payments) with two points charged on the loan. What dollar amount will the lender actually disbur..
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