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A firm is considering a new project that will require purchasing equipment which will have a cost of $18 million. Installation and modification of the equipment will cost $2 million. The project has a five year life, and the equipment will be depreciated using 3-year MACRS depreciation. The firm’s marginal tax rate is 40%.
a. Compute the depreciation expense each year over the five-year life of the project.
b. The firm estimates that the equipment could be sold for $3 million at the end of the project’s life. Compute the after-tax proceeds from the sale of equipment in year 5.
Which of the following is NOT associated with (or does not contribute to) business risk? Recall that business risk is affected by a firm's operations.
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Which one of these is a requirement when computing the net present value of a capital project?
Your firm is contemplating the purchase of a new $759,500 computer-based order entry system. The system will be depreciated straight-line to zero over its seven-year life. It will be worth $49,000 at the end of that time. Suppose your required return..
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Operating Budget: Total revenues Total expenses Net Income Statistics Budget: 2012 Inpatient Discharges 65,625. Thirty days after presenting the budget, you learn that the revenue budget is overstated by $25 million due to significant payment reducti..
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At an output level of 46.000 units, you calculate that the degree of operating leverage is 3.20. Suppose fixed costs are $130,000. What is the operating cash flow at 40.000 units? Operating cash flow $ What is the new degree of operating leverage?
A jewellery store manager wants to offer credit to her customers. Interest charges will be determined using end of month balances and part of monthly payments. A bank will lend the manager at 6 percent compounded monthly. To offset overhead, the mana..
IBM stock currently sells for 44 dollars per share. Over 5 months the price will either go up by 13.5 percent or down by -6.5 percent. The risk-free rate of interest is 7.0 percent continuously compounded. What is the value of a put option with strik..
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