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Question - Frank's Food Frenzy (FFF) has asked you to make a recommendation for an investment proposal they have been looking at and trying to decide on. The investment is for new equipment to build a new snack with a total cost of $7,200,000 plus $100,000 shipping costs. FFF is also planning to throw a big celebration if the investment is successful for $10,000. This new equipment will require an increase in inventory of $50,000 from day one of the proposal. All other assets of the company are remaining the same. Sales of this new product will be $12,000,000 per year with COGS estimated at 75% of sales. All other expenses are staying the same as before. FFF WACC is 15% and their marginal tax rate is 38%. The new equipment will have a CCA rate of 20% and there will be other assets in this class when the project ends in four years. The salvage value of the equipment will be $350,000 in four years. Assume the risk profile of the proposal is the same risk profile of JGG.
Required - Based on the NPV method, should FFF go ahead with the new equipment?
Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest. How much control does the Fed have over this longer real rate?
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Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.
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