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New-Project Analysis The president of the company you work for has asked you to evaluate the proposed acquisition of a new chromatograph for the firm’s R&D department The equipment's basic price is $100,000, and it would cost another $15,000 to modify it for special use by your firm. The chromatograph, which falls into the MACRS 3-year class, would be sold after 3 years for $35,000. Use of the equipment would require an increase in net working capital (spare parts inventory) of $4,000. The machine would have no effect on revenues, but it is expected to save the firm $40,000 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 40%.
a. What is the Year-0 net cash flow? If the answer is negative, use minus sign.
b. What are the net operating cash flows in Years 1, 2, and 3? Round your answers to the nearest dollar.
c. What is the additional (nonoperating) cash flow in Year 3? Round your answer to the nearest dollar.
A firm wants to create a weighted average cost of capital (WACC) of 7.2 percent. The firm's cost of equity is 10 percent and its pre-tax cost of debt is 8 percent. The tax rate is 34 percent. What does the debt-equity ratio need to be for the firm to..
Explain the concept of duration and then comment on the statement, “It is possible that a bond with a shorter maturity than another bond may actually have a longer duration and be more price sensitive to interest rate changes.” Explain why a bond wit..
Discuss the Arbitrage Pricing Theory and the Fama-French factor and the “preciseness” of techniques used to calculate cost of capital. How does one decide on which technique is best to use?
Och, Inc., is considering a project that will result in initial after tax cash savings of $1.74 million at the end of the first year, and these savings will grow at a rate of 1 percent per year indefinitely. The firm has a target debt-equity ratio of..
A firm has a market value equal to its book value. Currently, the firm has excess cash of $700 and other assets of $6,300. Equity is worth $7,000. The firm has 400 shares of stock outstanding and net income of $684. What will the new earnings per sha..
A project that provides annual cash flows of $2,300 for nine years costs $9,500 today. Requirement 1: At a required return of 11 percent, what is the NPV of the project? At what discount rate would you be indifferent between accepting the project and..
Your analysis of how followers can influence the effectiveness or ineffectiveness of leaders Hint: Your analysis should consider how the "followers" empower or enable the leader's behaviors (for good or bad).
Preference shares: paying dividends of 8% of a $100 par value, 15 000 outstanding, currently selling for $98 per share. What is the required rate of return on preference shares? Show all working out.
The XYZ Corporation has expected sales of $2,000,000 next year and profit margin of 10%. The firm has 500,000 shares outstanding. The current P/E ratio is 22 times and it is expected to continue in the future. How much would you pay for this stock to..
On January 2, 2014, Jensen Company borrowed $102,000 from Lyon Country Bank. The terms of the loan agreement specified 4 equal annual payments at 6% annual interest. Compute the amount of each of these payments, assuming, they begin on December 31, 2..
A firm's dividends have grown over the last several years. At the end of the year 2002, the firm paid a dividend of $1. At year end of 2014, it paid a dividend of $5. What was the average annual compound growth rate of dividends for this form? Round ..
assume that amazon has a stock-option plan for top management. each stock option represents the right to purchase a
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