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Coiner Clothes is contemplating the replacement of one of its knitting machines with a newer, and more efficient one. The old machine has a book value of $600,000 and a remaining useful life of 5 years. The firm does not expect to realize any return from scrapping the old machine in 5 years, but it can sell it now to another firm in the industry for $265,000. The old machine is being depreciated by $120,000 per year, using the straight-line method. The new machine has a purchase price of $1,175,000, an estimated useful life MACRS class life of 5 years, and an estimated salvage value of $145,000. The applicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%. The new machines is expected to save on electric power usage, labor and repair costs, as well as to reduce the number of defective articles of clothing. In total, an annual savings of $255,000 will be realized if the new machine is installed. The company’s marginal tax rate is 35% and it has a wacc of 12%. Should the firm purchase the new machine? Clearly support your answer.
Orca, Inc. announced today that it will begin paying annual dividends. The first dividend will be paid next year in the amount of $1.74 a share. The following dividends will be $1.41, $1.99, and $2.2 a share annually for the following three years, re..
ICS Manufacturing Company produces plastic parts for the automotive industry. Here is their Income Statement for 2015. ICS needs a total of $775,000, and if they lend the money today, ICS will repay it, with interest, at the end of the year. What is..
Payday loans are very short-term loans that charge very high interest rates. You can borrow $700 today and repay $812 in two weeks. What is the compound annual rate implied by this 16 percent rate charged for only two weeks?
Prepare income statements and vertical common-size balance sheets for both companies - Prepare ratio analyses
Terrier Company is in a 40 percent tax bracket and has a bond outstanding that yields 10 percent to maturity. b. Assume that the yield on the bond goes down by 1 percentage point, and due to tax reform, the corporate tax rate falls to 25 percent. Wha..
Show that country can gain from trade even if country does not change its production point.- What happens to the volume of trade as the country's position shifts from that shown in part a to that shown in part b ?
If a student borrows $20,000 to start a business as a 5 year, 10% loan, assume annual payments, the decrease in principal in year 1 is:-
Maritza has one share of stock and one bond. The total value of the two securities is 1,032 dollars. The bond has a YTM of 12.54 percent, a coupon rate of 11.28 percent, and a face value of 1,000 dollars; pays semi-annual coupons with the next one ex..
Well-known financial writer Andrew Tobias argues that he can earn 177 percent per year buying wine by the case.
How has Procter and gambles stock performed in the short term and the long term? Discuss the trends and offer the reader you opinion as to why the stock has performed the way it has.
McKnights Inc. uses a combination of common stock, preferred stock, and debt financing. The company wants preferred stock to represent 6 percent of the total financing. It also wants to structure the firm in a manner that will produce a weighted aver..
The delta of a derivatives portfolio dependent on the S&P 500 index is -2,000. The S&P 500 index is currently 1,000. Estimate what happens to the value of the portfolio when the index increases to 1,006.
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