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A new machine costing $100,000 is expected to save the McKaig Brick Company $15,000 per year for 12 years before depreciation and taxes. The machine will be depreciated as a 7-year class MACRS asset. The firm's marginal tax rate is 40 percent. What are the annual net cash flows associated with the purchase of this machine? Also compute the net investment (NINV) for this project.
(Hint: See Appendix 9A for information on MACRS depreciation. This problem is the same as Problem 5 except for depreciation method.)
Orono Corp.'s sales last year were $435,000, its operating costs were $362,500, and its interest charges were $12,500. What was the firm's time’s interest earned (TIE) ratio?
ABC Enterprise is considering the purchase of a new assembly line, costing $300,000. The new assembly line has a 5-year tax life and will be depreciated under straight-line. The firm estimates that in 4 years the assembly line can be salvaged for $40..
A bicycle manufacturer currently produces 300,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $2 a chain. The plant manager believes that it would be cheaper to make the..
The assets of Dallas & Assoc. consist entirely of current assets and net plant and equipment. The firm has total assets of $ 3,774,634 and net plant and equipment of $ 1,256,046. The company has notes payable of $ 146,282, long-term debt of $ 781,575..
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The length of time a firm must wait to recoup, in present value terms, the money it has in invested in a project is referred to as the:
Your company has the opportunity to make an investment that promises to pay $24,000 after 6 years. If your company has a required return of 8.5% on this type of investment, what is the maximum amount that the company should pay for the investment? Wh..
If future inflation rate is expected to decrease the shape of the yield curve will be. Fix it corp. is going to pay .50, .80. and 1.20 a share over the next three years, respectively. After that, the company has stated that the annual dividend will b..
Bond P is a premium bond that carries a 10% coupon rate. A separate bond-Bond D is a discount bond and has a 4% coupon rate. Each of these bonds makes an annual payment (not semi annual) and has a 7% YTM with 10 full years until they mature. Assume t..
Explain the use of IRR and cash multiples as alternative valuation metrics, and discuss the drawbacks of those methods. In your answer, include how sensitivity analysis affects the evaluation process.
If the Fed sells $2 million of bonds to the First National Bank, what happens to reserves and the monetary base? Use T-accounts to explain your answer.
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