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Lehman Imaging Center, a not-for-profit business, is evaluating the purchase of new diagnostic equipment. The equipment, which costs $1,500,000, has an expected life of 3 years and an estimated salvage value of $450,000 at that time. The equipment is expected to be used 30 times a week for 50 weeks a year for each year of the project’s life. On average, each procedure is expected to generate $750 in cash collections for each procedure performed. Labor costs are expected to be $45,000 during the first year of operation, while utilities will cost another $5,000. The cost for expendable supplies is expected to average $25 per procedure during the first year. All costs and revenues are expected to increase at a 5 percent inflation rate after the first year. The center’s corporate cost of capital is 10 percent.
Estimate the project’s net cash flows over its three-year estimated life.
What is the project’s NPV
What is the IRR?
Is the project profitable? Why or why not?
How much would you have in one year if you deposited the $53 instead. Should you loan the money to your friend or deposit it in the bank?
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Use the DB method to calculate the book value (BV) at the end of year six when R = 2/N (200% DB method).
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A stock has an expected return of 0.09, its beta is 1.14, and the risk-free rate is 0.04. What must the expected return on the market be?
The Pasta corporation a Brooklyn based manufacture of homemade pasta needs $1,000,000 and can raise this through debt at an annual rate of 10 percent, or preferred stock at an annual cost of 7 percent. The corporation has a 40 percent tax rate. You a..
Calculate the company’s Weighted Average Costs of Capital for the following:
What is the current price of the stock? What is the expected price of the stock in a year?
Consider a call option for an asset with the following parameters. Explain the premium in terms of what you expect to receive for selling and what you expect to spend for purchasing (all on a discounted basis).
A company could form a 'special purpose entity' (SPE)--under GAAP rules--to remove liabilities and assets off the company's financials
Your bank account pays an 8% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT?
Calculate the price of a 6.1 percent coupon bond with 10 years left to maturity and a market interest rate of 8.0 percent.
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