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Two years ago Quintana Company purchased a new piece of robotic-welding equipment (hereafter called Model ‘A’) which was more efficient than their existing equipment. Model ‘A’ cost $150,000, delivered and installed, and had a 10 year life expectancy with zero salvage value. At the time, it was figured that use of Model ‘A’ would reduce annual costs by $30,000.
Today, even better equipment (called “Model B”) is on the market, which makes Model A completely obsolete, with no resale value. The Model B equipment costs $300,000 delivered and installed, but it is expected to result in annual savings of $75,000 over the cost of operating the Model A equipment. The economic life of Model B is estimated to be 10 years with a zero salvage value. The company uses a 10% discount rate for analysis.
Both machines are CCA class 43 property with a rate of 30%. The firm’s marginal tax rate is 40%. What action should the company take?
Laser Technology, Inc. is analyzing a proposed new product. The company expects to sell 2,200 units, give or take 4 percent. The expected variable cost per unit is $290 and the expected fixed costs are $589,000. Cost estimates are considered accurate..
You believe you will spend $30,000 a year for 10 years once you retire in 20 years. If the interest rate is 5% per year, how much must you save each year until retirement to meet your retirement goal? Annual Savings ______ ?
No More Pencils, Inc., disburses checks every two weeks that average $94,000 and take five days to clear. How much interest can the company earn annually if it delays transfer of funds from an interest-bearing account that pays .011 percent per day f..
You want to invest in five-year U.S. Treasury notes. Unfortunately, you believe that yields will decline and prices will rise for five-year Treasury notes. Review futures in Treasury notes and set up a strategy so you can benefit from the rise in Tre..
Sandy Carter, the newly hired controller at Riley Home Products, Inc., was disturbed by what she had discovered about the standard costs at the Home Security Division. In looking over the past several years of quarterly income statements at the Home ..
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Explain how a fixed-for-floating swap can be considered a portfolio of forward contracts on six-month discount bonds.
Joker stock has a sustainable growth rate of 10 percent, ROE of 19 percent, and dividends per share of $1.60. If the P/E ratio is 16.5, what is the value of a share of stock?
The Medical Loss Ratio provision of the ACA requires insurers to spend a minimum of 80% of premium dollars on claims and enrollee expenditures 20% of premium dollars can be allocated to administration, marketing, and profits. For this given policy, i..
Preston Woods has 17,500 shares of stock outstanding along with $408,000 of interest bearing debt. The market and book values of the debt are the same. The firm has sales of $697,000 and a profit margin of 6.8 percent. The firm has $130,000 of curren..
Currency Call Options: - Determine the probability distribution of net gains per unit from purchasing a call option on British pounds.-
Suppose that Lil John Industries’ equity is currently selling for $34 per share and that 2.7 million shares are outstanding. The firm also has 57,000 bonds outstanding, which are selling at 102 percent of par. Which type of security (stocks or bonds)..
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