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Mars, Inc. is considering the purchase of a new machine which will reduce manufacturing costs by $5,000 annually. The company will depreciate the cost of the new machine using the straight line method over the project life and it expects to sell the machine at the end of its 5-year life for $10,000. The firm expects to be able to reduce net working capital by $15,000 when the machine is installed, but required working capital will return to the original level when the machine is sold after 5 years. Mars' marginal tax rate is 40%, and it uses a 12% required rate of return to evaluate projects of this nature. If the machine costs $60,000, what are the NPV and IRR of the project? Please show work to be rated.
A bank offers two 30 year, fixed rate, fully amortizing LPMs: an 85% LTV loan at 6%, and an 80% LTV loan at 5.5%. What is the marginal cost of borrowing if the loan is going to be held for 10 years?
A large automobile manufacturer has developed a continuous variable transmission (CVT) that provides smooth shifting and enhances fuel efficiency by 3 mpg of gasoline. The extra cost of a CVT is $850 on the sticker price of a new car.
Dixie Construction is a young firm that is in the process of bidding (and winning) construction contracts. While they are unable to pay any dividends today, once the contracts are awarded and their work begins in earnest, they expect to be able to st..
What major factors should the company be aware of as it evaluates possible investment projects in the future? Would you be interested in investing in this company? Why or why not? Are there additional factors that aren't a part of this case that you..
You are offered $1000 (in nominal dollars) 6 years from now in exchange for a loan of $750 today. You expect inflation to run 3.3% per year, and your real hurdle rate is 5%. Should you make the loan? You have $1000 in an account that yields a nominal..
Juggernaut Satellite Corporation earned $21 million for the fiscal year ending yesterday. The firm also paid out 25 percent of its earnings as dividends yesterday. The firm will continue to pay out 25 percent of its earnings as annual, end-of-year di..
Assume that the real risk-free rate is 2% and that the maturity risk premium is zero. If a 1 year Treasury bond yield is 5% and a 2 year Treasury bond yields 7%,what is the 1-year interest rate that is expected for the year 2? Comment on why the aver..
Your firm, General Hospital currently uses zero debt financing. Its operating income (EBIT) is $1 million and it pays taxes at a 40 percent rate. It has $5 million in assets and, because it is all-equity financed, $5 million in equity. Suppose the fi..
The price of a stock is $25 and the price of a three-month call option on the stock with a $27 strike is $2.50. Suppose a trader has $2,500 to invest and is trying to choose between buying 1,000 options (10 contracts) or 100 shares of stock. How high..
Backwater Corp. has 10 percent coupon bonds making annual payments with a YTM of 9.2 percent. The current yield on these bonds is 9.55 percent. How many years do these bonds have left until they mature?
(Solving for n with no annual periods) About how many years would it take for your investment to grow fourfold if it were invested at 6 percent compounded annually? If you invest $1 at 6 percent compounded annually, about how many years would it take..
Which of the following statements concerning preferred stock is most correct?
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