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Your life-long savings account is earning 7% at the local bank, and you are studying two possible alternative uses of some of those funds. One is to erect a gas station on the corner lot you own. It would cost $325,000 for construction, initial inventories, and other start-up expenses. You think you could generate net annual revenues of $75,000 for eight years, after which you think you could sell the station for $100,000. The other option is to erect an apartment building on the same property.[Mutually Exclusive alternates] This project would have a first cost of $550,000 and would generate an estimated $120,000 per year of net revenues. You would plan to sell it after eight years for an estimated $200,000. Note that there are THREE alternatives, including "do nothing" (which means leave all your money in your savings account).
a) Using a Present Worth or EACF analysis, which of the three would you do? Why?
b) Using a Rate of Return analysis, which would you select? [incremental analysis?]
c) At what MARR would the two alterntiave be equal.
You have a stock mutual fund in which you put $3,000 per year. How much will you accumulate in the account in 25 years if the interest rate is 10%? What if instead you have $4,000 to deposit in the mutual fund earning 10%? If you add $2,000 to that a..
Warmack Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $370,000 is estimated to result in $140,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and ..
If you were the CEO, would you approve this proposal? Why or why not?
You want to begin saving for retirement. You expect to retire in about 45 years. You are confident you can maintain a contribution of $200 into a retirement account each month. The account earns an APR of 3.6%, compounded quarterly. a. How much will ..
As suggested in the lecture pages for this week, there is a significant difference in measuring the performance of a supply chain from the perspective of the customer and from the perspective of the shipper. Describe the differences between these two..
Jiminy’s Cricket Farm issued a bond with 15 years to maturity and a semiannual coupon rate of 10 percent 4 years ago. The bond currently sells for 91 percent of its face value. The company’s tax rate is 38 percent. What is the company’s total book va..
The shareholders of Bryant Power Corp. need to elect three new directors to the board. There are 14,000,000 shares of common stock outstanding, and the current share price is $10.65. If the company uses cumulative voting procedures, how much will it ..
The Inventive Co. is considering a new project. This project requires an initial cash investment of $91,000. The project will generate cash inflows of $25,000 in the first year. Then, the project will do nothing for two years, after which time cash i..
Consider the following cash flows on two mutually exclusive projects for the Bahamas Recreation Corporation (BRC). Both projects require an annual return of 18 percent. Calculate the incremental IRR for the cash flows. Compute the NPV for both projec..
A major purpose of the prospectus is to: When underwriters issue securities on a best efforts basis, they: Stock underwriters are: Which one of the following best describes an initial public offering?
What is the value of d2 and the value of d1? What is the probability that the call is exercised? What is the discounted expected value of the sale price assuming the call is exercised optimally? What is the discounted expected value of the purchase p..
Strudler Real Estate, Inc., a construction firm financed by both debt and equity, is undertaking a new project. If the project is successful, the value of the firm in one year will be $320 million, but if the project is a failure, the firm will be wo..
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