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You must evaluate a proposal to buy a new milling machine. The base price is $135,000, and shipping and installation costs would add another $8,000. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $94,500. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The machine would require a $5,000 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $52,000 per year. The marginal tax rate is 35%, and the WACC is 8%. Also, the firm spent $4,500 last year investigating the feasibility of using the machine. What are the projects annual cash flows during years 1,2, and 3? Should the machine be purchased? Explain.
Compounding frequency and time value: You plan to invest $2,000 in an individual retirement arrangement (IRA) today at a nominal annual rate of 8%, which is expected to apply to all future years.
A manufacturing unit has fixed costs of $140,000 per month and variable costs of $4 per unit. Determine the monthly profit if they manufacture and sell 120,000 units per month at $12 each. A manufacturing unit has fixed costs of $170,000 per month an..
Interpret the inflation premium, default risk premium, maturity risk premium, and liquidity premium. Calculate a nominal interest rate given the risk free rate of return (r*) and all necessary premiums. Interpret and explain the term structure of int..
In exchange for a $400 million fixed commitment line of credit, your firm has agreed to do the following: Pay 1.95 percent per quarter on any funds actually borrowed. Ignoring the commitment fee, what is the effective annual interest rate on this lin..
Your car dealer is willing to lease you a new car for $309 a month for 48 months. Payments are due on the first day of each month starting with the day you sign the lease contract. If your cost of money is 4.1 percent, what is the current value of th..
"The more debt the firm issues, the higher the interest rate it must pay. That is one important reason why firms should operate at conservative debt levels." Explain fully your position on this statement.
Evaluate how the changes in assets and liability valuations impact the measurement of net income on the income statement - Explain the impact to the company's stock price when the restatement was released and to future earnings forecast, indicating ..
What will be the total deduction for social security and Medicare taxes on Rony's next semi monthly pay check of $3,960, if she has already earned $42,560 this year? (Social security tax is 6.2% of gross wages up to $106,800. Medicare tax is 1.45% of..
Pacheco Inc. issued convertible bonds 10 years ago. Each bond had an initial term of 30 years, had a face value of $1,000, paid a coupon rate of 11%, and was convertible into 20 shares of Pacheco stock, which was selling for $30 per share at the time..
What is one share of this stock worth today if the market rate of return on similar securities is 10 percent?
Suppose the call money rate is 6.8 percent, and you pay a spread of 1.9 percent over that. You buy 700 shares at $61 per share with an initial margin of 30 percent. One year later, the stock is selling for $66 per share, and you close out your positi..
You expect a share of Google, which does not pay dividends, to triple in value over the next year. What is the effective monthly return implied by your assumption?
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