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Bob owns a mill and is thinking of replacing the old machine with a new machine. The old machine has a historical cost of $30,000 and accumulated depreciation of $27,000 and has a trade-in value of $4,200. It currently costs $600 per month in utilities and another $5,000 a year in maintenance to run the machine. Bob feels that the machine can be used for another 15 years, after which it would have no salvage value. The new machine would reduce the utility costs by 30% and cut the maintenance cost in half. The new machine costs $49,000, has a 15-year life, and an expected disposal value of $4,000 at the end of its useful life. Bob charges customers $5 per hour to use the fitness center. Replacing the machine will not affect the price of service or the number of customers he can serve. Question: Bob wants to evaluate the new machine using capital budgeting techniques but does not know how to begin. To help him, read through the problem and separate the cash flows into four groups: (1) net initial investment cash flows, (2) cash flow savings from operations, (3) cash flows from terminal disposal of the investment, and (4) cash flows not relevant to the capital budgeting problem. Assuming a required rate of return of 7%, and straight-line depreciation over remaining useful life of machines should bob buy the new machine.
Raymond Supply, a national hardware chain, is considering purchasing a smaller chain, Strauss & Glazer Parts (SGP). Raymond's analysts project that the merger will result in the following incremental free cash flows, tax shields, and horizon values: ..
Consider an asset with a beta of 1.2, a risk-free rate of 5%, and a market return of 13%. What is the reward-to-risk ratio in equilibrium? What is the expected return on the asset?
Review the financial data - The company has narrowed the choice to the following two alternatives, with the cash flow information being available - Post an explanation of the tools that you believe would help you to reach a decision. If you were a..
The Chinese character for risk combines danger and opportunity.
Assume that machine B will be available in the future at the same costs. Enter the Annual Equivalent Cost as a positive number of the preferred machine."
Peru's annual inflation rate for 1990 was 7,650 percent, an all time high for this country. In 1991, the annual rate dropped backed to approximately 140 percent. In September 1993, the annual rate was at approximately 20 percent, the lowest in 17 yea..
You and your spouse are planning on buying a $200,000 house. Your bank is willing to give you a 30 year mortgage loan at 6.12%APR with monthly repayments. How much interest would you pay over the life of the loan?
10 years ago, Maria’s annual salary was $25,185. Today, she earns $74,523. What was the average annual growth rate of Maria's salary?
Describe the role of finance in today's healthcare organizations. Identify and describe the Four C's that summarize finance activities.
(Net present value calculation) Big Steve’s, makers of swizzle sticks, is considering the purchase of a new plastic stamping machine. This investment requires an initial outlay of $100,000 and will generate net cash inflows of $18,000 per year for 10..
Some consumers might consider purchasing a new car with a car loan, while using credit cards to cover other purchases, and making only the minimum required payment to the credit card company each month. What is your opinion of this strategy?
The "portfolio effect" in capital budgeting refers to. Which of the following is NOT true about the life-cycle growth and dividend policy?
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