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The Quick Manufacturing Company, a large profitable corporation, is considering the replacement of a production machine tool. A new machine would cost $3700, have a 4- year useful and depreciable life, and have no salvage value. For tax purposes , sum of years' digits depreciation would be used. The existing machine tool was purchased 4 years ago at a cost of $4000 and has been depreciated by straightline depreciation assuming an 8 year life and no salvage value. The tool could be sold now to a used equipment dealer for $1000 or be kept in service for another 4 years. It would then have no salvage value. The new machine tool would save about $900 per year in operating costs compared to the existing machine. Assume a 40% combined state and federal tax rate.
A Replacement Analysis based on Annual Equivalent of Cash Flow After Taxes MUST be conducted. Assume i=10%% and there is a 4 years plan of study for both the challenger and defender in this case. I have what the answers should be but I'd like to see how it's done correctly..
Annual Equivalent of Defender (keeping equipment) should be - $242
Annual Equivalent of Challenger (buying new equipment) should be -$239
Among a company’s assets and accounting records, an actuary finds a 10-year bond that was purchased at a premium. What is the value of the premium?
Suppose stock in Boone Corporation has a beta of .90. The market rate premium is 7 percent, and the risk-free is 8 percent. Boone's las dividend was $1.80 per share, and the dividend is expected to grow at 7 percent indefinitely. The stock currently ..
Consider a home mortgage where you borrow $200,000 with a 30-year fixed rate loan. Suppose the mortgage interest rate is 0.708333% per month. What is your monthly mortgage payment?
To calculate the number of years until maturity, assume that it is currently May 2013. Rate Maturity Mo/Yr Bid Asked Chg Ask Yld. What is the coupon rate for this bond?
Stock R has a beta of 2.1, Stock S has a beta of 0.55, the expected rate of return on an average stock is 9%, and the risk-free rate is 7%. By how much does the required return on the riskier stock exceed the required return on the riskier stock exce..
Please solve this After-tax component cost of debt problem. Assume that the federal tax rate is 40%. If the pre-tax cost of debt is 9%, what is the After Tax Cost of Debt?
Ramstucky Corp bonds just paid their annual coupon of 4%. They mature in 6 years. The required rate of return on the bonds is 5%. So it’s a $10,000 bond selling for $9,000. The call price of the bonds is 102, but they are not callable until after the..
Company X owns a portfolio that is invested 19.04 percent in stock A, 39.26 percent in stock B, and the remainder in stock C. What is the expected return (in percents) on the portfolio? Stock A has an expected return of 13.99 percent and a beta of 1...
You have your choice of two investment accounts. Investment A is a 6-year annuity that features end-of-month $2,600 payments and has an interest rate of 9 percent compounded monthly. Investment B is an annually compounded lump-sum investment with an ..
The investors in Generation.com, a company organized to sell fashions to the current generation of teenagers over the Internet, are interested in harvesting their investments. The investment banker is recommending an IPO that would yield gross procee..
Cost-benefit analysis presents data as a ratio to determine financial impact on company profitability. The formula is: cost-benefit ratio = value of projected benefits divided by cost. What is the cost-benefit ratio of this training? What is the retu..
Describe the size, structure and composition of the mutual fund industry. Do you consider these characteristics as having a positive or negative impact on investors? Why?
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