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You are considering the purchase of one of two machines used in your manufacturing plant. Machine A has a life of two years, costs $95 initially, and then $140 per year in maintenance costs. Machine B costs $165 initially, has a life of three years, and requires $115 in annual maintenance costs. Either machine must be replaced at the end of its life with an equivalent machine. The discount rate is 12 percent and the tax rate is zero. Calculate the EAC. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.
EAC
Machine A $
Machine B $
Which one should you choose? Machine A or Machine B
During the year, X purchased land and a building for a total of $500,000 and furniture for the building for $100,000. He intends to lease the building. Indicate whether the following factors are taken into account in computing the depreciation of the..
Lakonishok Equipment has an investment opportunity in Europe. The project costs €15 million and is expected to produce cash flows of €2.8 million in Year 1, €3.4 million in Year 2, and €3.9 million in Year 3. The current spot exchange rate is $1.43 /..
Lawler's is considering a new project. The company has a debt-equity ratio of 0.72. The company's cost of equity is 15.1 percent, and the after tax cost of debt is 7.2 percent. The firm feels that the project is riskier than the company as a whole an..
Consider the following project which costs $1,000,000 with a salvage value of $50,000 in 5 years. The project will produce a new type of running shoes which will be sold for $235 and have variable costs of $95 per pair. The company has fixed costs of..
Lance Whittingham IV specializes in buying deep discount bonds. These represent bonds that are trading at well below par value. He has his eye on a bond issued by the Leisure Time Corporation. What is the current price of the bonds? By what percent w..
A bank is going to issue $10,000,000 in 5-year par value bonds that pay a 5% annual coupon. The bank must pay .7% of the face value in floatation costs. What is the bank's effective cost of borrowing?
Which of the following statements regarding a firm's optimal capital structure is true? Review the list and identify which items are correct
Your firm is considering an expansion into a new investment project. The investment would cost $1,000K and there are two states of the world that will determine the values of your existing assets and new investment project today.
During a period when interest rates are very low by historical standards and are expected to increase substantially over time, individuals should choose. Asset utilization ratios. A short-term creditor would be most interested in.
Create your own Capital Project analysis problem by performing an NPV calculation:
Calculate each project's payback period, net present value (NPV),and internal rate of return (IRR).b. Which project (or projects) is financially acceptable? Explain your answer.
Southern California Publishing Company is trying to decide whether to revise its popular textbook, Financial Psychoanalysis Made Simple. The company has estimated that the revision will cost $80,000. If the company requires a return of 12 percent for..
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