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Projects with different lives: You are trying to choose between purchasing one of two machines for a factory. Machine A costs $15,000 to purchase and has a three-year life. Machine B costs $17, 700 to purchase but has a four-year life. Regardless of which machine you purchase, it will have to be replaced at the end of its operating life. Which machine should you choose? Assume a marginal tax rate of 35 percent and a discount rate of 15 percent.
Companies HD and LD have the same tax rate, sales, total assets, and basic earning power. Both companies have positive net incomes. Both firms finance using only debt and common equity and total assets equal total invested capital.
Unfortunately, the hot bread caused the ink to run, and customers opening the carton often found red or blue splotches on their pizzas. Highland refused to accept additional brochures, and Comark sued for breach of contract. Highland defended by c..
Imagine a close friend asks you if they should attempt to manage their own portfolio or hire someone to help them. Share the pros and cons of both as well as at least one resource (book, article, video, etc.) that can help them decide.
Leverage can reduce the degree of managerial entrenchment because managers are more likely to be fired when a firm faces financial distress. When a firm is highly levered, creditors themselves will closely monitor the actions of managers, providing a..
You need a 30-year, fixed-rate mortgage to buy a new home for $240,000. Your mortgage bank will lend you the money at a 7.5 percent APR for this 360-month loan, with interest compounded monthly. What will be the amount of the balloon payment if you a..
Which of the following must result in understated liability balances?
Assume the current spot price for crude oil is $64.05 per barrel and the futures price for crude oil is $64.10 per barrel. A futures contract is for 1000 barrels. On Monday, Stacey buys one futures contract from Ben. How much must Stacey deposit in h..
What is the net present value of a project if the required rate of return is 12 percent? The cash flows, in order, are -$42,398 (initial cost), $13,407 (year 1 CF), $21,219 (year 2 CF) and $17,800 (year 3 CF).
An insurance company offers you an annuity of $36,000 per year for the next 15 years. They claim your return on the annuity is 13%. What should you be willing to pay today for the annuity?
Mr. J. J. Parker is creating a college fund for his daughter. He plans to make 15 yearly payments of $1500 each with the first payment deposited today on his daughter’s first birthday. Assuming his daughter will need four equal withdrawals from this ..
Suppose that you buy a stock for $48 by paying $25 and borrowing the remaining $23 from a brokerage firm at 8 percent annualized interest. The stock pays an annual dividend of $0.80 per share, and after one year, you are able to sell it for $65. Calc..
Suppose that the spot rate is $.9843/Euro, the six-month forward rate is $.9687/Euro and the yields on six-month money market instruments are 9% per annum in the US and 11% per annum in Europe. In which direction would the value of the euro move in t..
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