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You are evaluating a proposal to buy a new milling machine. The base price is $108,000 and shipping and installation costs would add another $12,500. The machine would be sold after 3 years for $65,000. The machine would require a $5,500 increase in net working capital (inventory). There would be revenues of $44,000 per year and cost of $10,000 per year. The company's tax rate is 35%, and the cost of capital (WACC) is 12%. Also the firm spent $15,000 last year investigating the feasability of using the machine. The opportunity cost of purchasing the machine is $5,000.
A) How should the $15,000 spent last year be handled?
B) What are the cash flows for each year - Initial cash flow. Operating cash flow and terminal cash flow?
C) Should the machine be purchased?
Calculate the NPV and IRR for the project. Can you use each of these in this analysis? Should the company undertake the project?
You work for a pharmaceutical company that has developed a new drug. What is the present value of the new drug if the interest rate is 11% per? year?
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You buy a stock today for $19. The price of the stock at the end of the first year is normally distributed with a mean of 19+3.48 and a standard deviation of 4.
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Modern Artifacts can produce keepsakes that will be sold for $60 each. Nondepreciation fixed costs are $2,000 per year, and variable costs are $30 per unit. What is the accounting break-even level of sales if the firm pays no taxes? What is the NPV b..
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