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Your firm is contemplating the purchase of a new $700,000 order entry system. The system has an expected 4-year useful life. It will be worth $40,000 at the end of that time. The machine will be depreciated according to the 3-year Modified Accelerated Cost Recovery System (MACRS). You will save $240,000 before taxes per year in order processing costs and you will be able to reduce working capital by $80,000 (this is a one-time reduction). If the tax rate is 35 percent and cost of capital is 12%, what are the NPV and IRR for this project?
Apply the Excel spreadsheet model to find out the NPV and IRR of the project.
Next, run a sensitivity analysis for: What happens if the cost of new machine increases to $235,000?
BP's experience in the Gulf of Mexico has made it the poster company for how not to manage stakeholder relationships effectively (see Strategy Highlight 1.2). What advice would you give to BP's managers in order to help them continue to rebuild stake..
If the firm's total assets at year-end were $50.7 million, how much of their assets are financed with equity?
As "The oculist's Case" indicates, the medical profession has faced a large number of lawsuits for centuries. Which rule seems sensible to you-the "Texas" rule
Five years ago Camaro Corp. issued semiannually payable bonds with a maturity of 15 years and an annual coupon of 7%. The bonds were issued at par. Today the YTM of these bonds is 5%. What is the current price of the bonds as a percentage of their pa..
INTERMEDIATE 9. Gulf Controls, Inc., has a net profit margin of 10 percent and earnings after taxes of $600,000. Its current balance sheet follows: Compare Gulf Controls with the average firm in the industry. What is the source of the major differenc..
Calculate the Payback Period for this Project. Calculate the Profitability Index for this project.
Compare and contrast theoretical framework and conceptual framework. What are the objectives of a firm seeking to merge with another firm?
Consider the following data for a one-factor economy. All portfolios are well diversified. Portfolio A: E(r)=12% Beta=1.2%, Portfolio F E(r)=6% Beta=0% Suppose that another protfolio E is well diversified with a beta of 0.6 and expected return of 7%...
You purchase a $10,000 bond with a bond rate of 6% per year payable semiannually for 2 years. You pay $9,600 for the bond.
Consider a firm with an EBIT of $858,000. Calculate the EPS before and after the change in capital structure and indicate changes in EPS.
Consider the borrowing costs in USD faced by the following three companies: Company A and company B want to engage in the swap transaction. Find the range for the swap rate within which both companies would benefit from the swap?
Stock A has a beta of 0.4 and investors expect it to return 5%. Stock B has a beta of 1.6 and investors expect it to return 14%. Use the CAPM to find the market risk premium and the expected rate of return on the market.
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