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Kenner Broom buys a machine for his business. The machine costs $150,000. Kenner estimates that the machine can produce $40,000 cash inflow per year for the next five years. His cost of capital is 12 percent. What is the approximate net present value?
What would be its price under continuous compounding of a 10% annual rate?
Assume you are a businessperson with an opportunity to make more money by meeting with competitors and fixing prices, conduct which is illegal. The authorities will not discover that the prices have been fixed. Is this price-fixing fair? Ethical? Soc..
A company is considering investment in one of two mutually exclusive projects, X and Y. what is the RADR for each project?
You have your choice of two investment accounts. Investment A is a 7-year annuity that features end-of-month $3,300 payments and has an interest rate of 7 percent compounded monthly. How much money would you need to invest in B today for it to be wor..
Blue Electronics is considering the purchase of a water filtration system to assist in circuit board manufacturing. The system costs $40,000. It has an expected life of 7 years at which time its salvage value will be $7,500. The estimated operating a..
Expound on the differences of the three cases of stock valuation. What influences these different cases? How are utilities not the same as technology stocks? How are food firms not the same as the other two? Tech firms, as a general rule, pay no divi..
Consider the following two mutually exclusive projects: If you apply the payback criterion, which investment will you choose? Why? If you apply the discounted payback criterion, which investment will you choose? Why?
What are the advantages and disadvantages of issuing convertible bonds?
Bond X is noncallable and has 20 years to maturity, a 9% annual coupon, and a $1,000 par value. Your required return on Bond X is 10%; if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5 years, the yield t..
Companies raise capital by issuing new securities in secondary markets. Preferred dividend payments are fixed amounts paid on a regular basis. Preferred stock with no fixed maturity can be valued using the present value of a perpetuity formula.
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer’s base price is $1,080,000, and it would cost another $22,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold af..
Kenny, Inc., is looking at setting up a new manufacturing plant in South Park. The company bought some land six years ago for $8.9 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent fac..
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