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An industrial firm can manufacture several lines of pressure washers. The demand for a particular component required for a pressure washer is 120,000 per year. The firm has the following two options:
Buy option: A supplier is willing to provide this component at a unit sales price of $35.000, if at least 100,000 units are ordered annually.
Make option: The machine that can be used to manufacture this component costs $2,200,000 now and will have a salvage value of $120,000 after five years. The manufacturing cost per unit including the direct material and labor and the variable and fixed factory overhead is only $30.00. In addition, the annual maintenance cost of the machine is $100,000.
Calculate the unit under each of the above two options and choose the best option. Assume that the firm’s interest rate is 12%, compounded annually.
A 6.60 percent coupon bond with 15 years left to maturity is priced to offer a 5.3 percent yield to maturity. You believe that in one year, the yield to maturity will be 6.0 percent. What would be the total return of the bond in dollars? What would b..
merger analysis ltbrgt ltbrgttransworld communications inc. a large telecommunications company is evaluating the
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Five year ago, you invested in a 5% semi-annual coupon bond with a face value $1,000 for $910. Today, at the date of maturity, the bond issuer announces that default occurs with a renegotiation price $950. If you accept the renegotiation price at the..
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introductionbecause of the increased scrutiny on the actions of corporations and those who act on behalf of
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Svenska BK (Swedish bank) enters into a forward contract with a customer to buy Krona (Swedish currency) for $1.25 (US currency) in six months time. After 6 months have gone by the spot exchange rate is now $1.36/Krona. The company asks you (Svenska ..
Although NOLs represent a potential source of value, their use must be monitored carefully to realize their full value resulting from the potential for deferring income taxes. The sale of assets by a target firm will result in a taxable gain if the f..
You purchase 2,500 bonds with a par value of $1,000 for $985 each. The bonds have a coupon rate of 7.7 percent paid semi-annually, and mature in 10 years. How much will you receive on the next coupon date?
Nungesser Corporation's outstanding bonds have a $1,000 par value, a 6% semi-annual coupon, 18 years to maturity, and an 7.5% YTM. What is the bond's price? Round your answer to the nearest cent.
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