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Your firm, Agrico Products, is considering the purchase of a tractor that will have a net cost of $36,000, will increase pre-tax operating cash flows before taking account of depreciation effects by $12,000 per year, and will be depreciated on a straight-line basis over 5 years at the rate of $7,200 per year, beginning the first year. (Annual cash flows will be $12,000, before taxes, plus the tax savings that result from $7,200 of depreciation.) The board of directors is having a heated debate about whether the tractor will actually last 5 years. Specifically, Elizabeth Brannigan insists that she knows of some tractors that have lasted only 4 years. Philip Glasgo agrees with Brannigan, but he argues that most tractors do give 5 years of service. Laura Evans says she has known some to last for as long as 8 years.Given this discussion, the board asks you to prepare a scenario analysis to ascertain the importance of the uncertainty about the tractor's life. Assume a 40% marginal federal-plus-state tax rate, a zero salvage value, and a cost of capital of 10%. (Hint: Here straight-line depreciation is based on the MACRS class life of the tractor and is not affected by the actual life. Also, ignore the half-year convention for this problem).
Journal entry to record the issuance of bonds and interest payment on such bonds and Calculation of Bond interest expense
On the basis of the mentioned information you as a finance manager are asked to provide the following : Estimate the firms return on capital. What would be the reinvestment rate of the firm?
Quantum and Aquafin Products. Senior managers at Quantum Products are evaluated in terms of rise in profit.
IP Corporation is expected to pay $1.70 dividends next year. The dividend growth rate is expected to be 7 percent forever. If the required rate of return for IP is 10 percent.
Sustainable growth. A firm has decided that its optimal capital structure is 100 percent equity financed. It perceives its optimal dividend policy to be a 40 percent payout ratio.
Barrett Corporations invests a large sum of money in R&D; as a result, it retains and reinvests all of its receiving. Barrett does not pay any dividends and it has no plans to pay dividends in the near future.
Penn Steelworks is a distributor of cold-rolled steel products to the automobile industry. All of its sales are on a credit basis, net thirty days. Sales are evenly distributed over its 10 sales regions throughout US.
Explain Accounts receivables and No other asset build-up will be required to service the new accounts
Compute the required minimum distribution for jason.
A governmental funds Statement of Revenues, Expenditures, and Changes in Fund Balances reported expenditures of $33,500,000, including capital outlay expenditures of $3,200,000.
Determine the two major sources of spontaneous short-term financing for a firm and explain how do their balances behave relative to the firm's sales?
How does sensitivity analysis relate to contingency planning? What are a couple risk mitigation strategies which you could execute to de-sensitize these variables?
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