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The managers of Poncho Parts, Inc. plan to manufacture engine blocks for classic cars from the 1960s era. They expect to sell 250 blocks annually for the next 5 years. The necessary foundry and machining equipment will cost a total of $800,000 and will be depreciated on a straight-line basis to zero over the project’s life. The firm expects to be able to dispose of the manufacturing equipment for $150,000 at the end of the project. Labor and materials costs total $500 per engine block, fixed costs are $125,000 per year. Assume a 35% tax rate and a 12% discount rate.
A. What is the minimum bid price they can quote on this project?
B. Following up on the above, how are the results affected if addition to net working capital is $50,000 in year 0 and $50,000 in year 1? A numerical answer is required.
C. How are opportunity costs and side effects affect capital budgeting decisions?
Exactly three years ago, you purchased a $1,000 face value bond for $1,211.16. The coupon rate was 6.5 percent with interest paid semiannually. Today, you sold that bond for $1,089.54. What was your rate of return for the 3-year period, or holding pe..
What are temporary differences? What gives rise to temporary differences? Some accountants believe that deferred taxes should be recognized only for some temporary differences. The FASB requirement states that deferred taxes should be recognized for ..
What other factors play into risks that are not covered in the video? When have you had to consider risk and return in personal or professional decision-making?
Consider the following information: Rate of Return If State Occurs State of Probability of Economy State of Economy Stock A Stock B Recession .15 .06 − .10 Normal .56 .09 .19 Boom .29 .14 .36 Calculate the expected return for each stock.
For each level of correlation, identify efficient frontier, the minimum variance portfolio and explain the shape of the investment set and efficient frontier.
Rustin recently retired from Fox Inc. When he retired his stock bonus plan had 10,000 shares of Fox inc stock. They took deductions equal to $20 per share for the contributions made on Rustin’s behalf. Assume the same facts presented in #12. What amo..
Consider a C corporation. The corporation earns $5 per share before taxes. After the corporation has paid its corresponding taxes, it will distribute 0% of its earnings to its shareholders as a dividend. What are the shareholder's earnings from the c..
Income Statement Preparation: On December 30,2015, Cathey Chen, a self employed CPA, completed her first full year in business. During the year, she billed $360000 for her accounting services. She had two employees, a bookkeeper and a clerical assist..
The Alpha Tool Corporation has never paid a dividend, but the new company president has announced. If you require a 15 percent rate of return on this stock, how much would you pay for one share of stock today?
Green Landscaping. Inc. is using net present value (NPV) when evaluating projects.The project will produce the same after-tax cash inflows of $655.460 per year
ACME is deciding where to invest. Project 1 will produce cash flows of $52,000 a year for 6 years. Project 2 has cash flows of $48,000 a year for 8 years. If the interest rate is 15%, which project should ACME select and why?
The Window Store will have a value of $163,000 if the economy does well this coming year and a value of $142,000 if the economy does poorly. The probability of a good economy is 55 percent. The firm owes its bondholders $54,000. The firm will only op..
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