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Louie's Leisure Products is considering replacing a project which will require the purchase of $1.4 million in new equipment. The equipment will be depreciated straight-line to a zero book value over the 7-year life of the project. Louie's expects to sell the equipment at the end of the project for 20% of its original cost. The existing equipment of this project was purchased 3 years back for $700,000 and has been depreciated using 5 year MACRS schedule. This machine has a salvage value of $500,000 today. The machine has another 7 years useful life left, after which it can be sold for $50,000. Annual incremental cost saving from this project are estimated at $1.2 million. Net working capital equal to 20% of sales will be required to support the project. All of the net working capital will be recouped at the end of the project. The firm desires a minimal 14% rate of return on this project. The tax rate is 34%. Should Louie's accept the project by replacing the existing equipment with the new one? Use NPV and IRR decision rule in making your decision.
DeYoung Entertainment Enterprises is considering replacing the latex molding machine it uses to fabricate rubber chickens with a newer, more efficient model.
Explain your position. What is the best way for an auditor to reduce their liability? Why?
hat are Eric's major financial concerns in his current situation? In what ways might Eric improve his tax planning efforts?
marginal tax rate on earnings marginal tax rate on earnings marginal tax rate on earnings marginal tax rate on earnings marginal tax rate on earnings marginal t
The investment requires an upfront cost of $1,000,000, and will generate end of year cash flows of $300,000 for four years (ie, four year annuity of $300,000).
What is the expected free cash flow in the second year of the project if the firm's marginal tax rate is 35â%?
how can a forward contract on a stock with a particular delivery price and delivery date be created from
Consider an economy with two types of firms, S and I. S firms all move together. I firms move independently. For both types of firms, there is a 60% probability that the firms will have a 15% return and a 40% probability that the firms will have a..
1. Use the Homework Student Workbook to calculate each project's net present value (NPV), internal rate of return (IRR), modified internal rate of return (MIRR), and profitability index (PI).
What is the present value of what Ruth will need to borrow in order to have the rent money available, if she can invest at an annual interest rate of 6%.
A. What are the specific risks associated with retirement saving and planning? In your responses make sure you look at risk from both a traditional finance as well as a behavioral finance perspective.
You have just taken on a 30-year, 6%, $300,000 mortgage and would like to pay it off in 20 years. By how much will your monthly payment have to change to accomplish this objective?
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