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One year ago, your company purchased a machine used in manufacturing for $110 000. You have learned that a new machine is available that offers many advantages; you can purchase it for $150 000 today. It will be depreciated on a straight-line basis over 10 years and has no salvage value. You expect that the new machine will produce a gross margin (revenue minus operating expenses other than depreciation) of $40 000 per year for the next 10 years. The current machine is expected to produce a gross margin of $20 000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 11 years, and has no salvage value, so depreciation expense for the current machine is $10 000 per year. The market value today of the current machine is $50 000. Your company’s tax rate is 30%, and the opportunity cost of capital for this type of equipment is 10%. Should your company replace its year-old machine?
When npv is worked out at the end, how would you determine if you should replace the machine or not?
What is the average accounts receivable figure?
Ben Bates graduated from college six years ago with a finance undergraduate degree. Although he is satisfied with his current job, his goal is to become an investment banker. He feels that an MBA degree would allow him to achieve this goal. What init..
Use risk-free portfolios to calculate the value of a three- month European put with the strike price 101
Stock A has a beta of 1.75 and an expected return of 15%. Stock B has a beta of 2.78 and an expected return of 23%.
It can be easy to dismiss those who disagree with you as uninformed. How does understanding the different world view of someone who disagrees with you make debate and discussion more productive?
Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.79 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,110,000 in ..
What is the hedged value of American’s ticket sales using a forward market hedge?
Dickson City Company has annual sales of $5 million, while the cost of goods sold is $3.2 million. All sales are made on a cash basis. The owner of Dickson has come up with the plan of giving credit to the customers. The manager of the firm doubts wh..
Jeans manufacturing thinks that it can reduce its high credit costs by tightening its credit standards.
Recently, you attended an alumni gathering online. A friend from your days at your university proposes you form a partnership to offer consulting services. That friend currently has a contract in hand that would provide approximately 12 months of eng..
You have accumulated some money for your retirement. You are going to withdraw $87,479 every year at the end of the year for the next 20 years. How much money have you accumulated for your retirement? Your account pays you 3.55 percent per year, comp..
Calculate the price of a zero coupon bond that matures in 14 years if the market interest rate is 5.45 percent.
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