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Air Spares is a wholesaler that stocks engine components and test equipment for the commercial aircraft industry. A new customer has placed an order for eight high-bypass turbine engines, which increase fuel economy. The variable cost is $3.4 million per unit, and the credit price is $3.705 million each. Credit is extended for one period, and based on historical experience, payment for about 1 out of every 100 such orders is never collected. The required return is 4.0 percent per period. a-1 What is the NPV per engine purchased on credit? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Round your answer to 2 decimal places. (e.g., 32.16)) NPV $ per unit a-2 Assuming that this is a one-time order, should it be filled? The customer will not buy if credit is not extended. Yes No b. What is the break-even probability of default in part (a)? (Round your answer to 2 decimal places. (e.g., 32.16)) Break-even probability % c-1 Suppose that customers who don't default become repeat customers and place the same order every period forever. Further assume that repeat customers never default. What is the NPV per engine purchased on credit? NPV $ per unit c-2 Assuming the customer becomes a repeat customer, what is the break-even probability of default?(Round your answer to 2 decimal places. (e.g., 32.16)) Break-even probability %
You have just made your first $4,500 contribution to your individual retirement account. Assume you earn a 11.30 percent rate of return and make no additional contributions. What will your account be worth when you retire in 39 years? What if you wai..
A small town hospital is debating whether to lease or purchase a new imaging machine. What financial and other factors do you think they need to consider when making a decision?
Should foreign companies seeking to issue securities in the United States be required to disclose as much as U.S. Companies issuing securities in the United States? Critically evaluate the arguments.
Jay Wechsler agrees to purchase a car from a local dealer, the Con Car Co. The purchase price is $15,000. Jay has the cash to pay the entire amount and wants to do so. Con's sales manager ises the following argument to convince him to finance the car..
Adds. Inc., is considering a project that will result in initial after-tax cash savings o million at the end of the first year, and these savings will grow at a rate of 4% per year indefinitely. The find has a target debt-equity ratio of 0.7. a cost ..
Jiminy Cricket Removal has a profit margin of 11 percent, total asset turnover of 1.01, and ROE of 14.45 percent. What is this firm’s equity multiplier? What is this firm’s debt-equity ratio?
Explain how and why the shareholders' return requirements are influenced by a company's unsystematic and systematic risks. How is the capital of the company and the value of the company if the central bank suddenly decides to sharply raise the policy..
In 1985, a given Japanese imported automobile sold for 1,476,000 yen, or $8,200. If the car still sold for the same amount of yen today but the current exchange rate is 144 Yen per dollar, what would the car be selling for today in U.S. dollars? Show..
Suppose we have the following returns for large-company stocks and Treasury bills over a six year period: Year Large Company US Treasury Bill 1 4.00 4.62 2 14.49 4.96 3 19.33 3.88 4 –14.35 7.00 5 –31.84 5.38 6 37.04 6.43 a. Calculate the arithmetic a..
The different risks that have to be considered when conducting an analysis are: credit risk (or defaulting on a debt,) liquidity risk (or not being able to move the asset fast enough when needed,) market risk (or lower demand leading to loss of produ..
You are planning to save for retirement over the next 30 years. To do this, you will invest $720 per month in a stock account and $320 per month in a bond account. The return of the stock account is expected to be 9.2 percent, and the bond account wi..
You have been asked by a manager in your organization to put together a training program explaining Net Present Value (NPV) and Future Value (FV) and how they are used to evaluate the price of stock. Describe the factors that are used in the NPV and ..
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