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Your profitable company is considering acquiring a new computer system that will initially cost $1,000,000 and will save $400,000 per year in inventory and receivables management costs. The system will last for four years. The system is expected to have a salvage value of $100,000 at the end of year 4 and will be depreciated to zero using three year MACRS (rates are: Year 1: .3333, Year 2: .4445, Year 3: .1481, Year 4: .0741). The marginal tax rate is 40%. Assume a required rate of return of 12%.
What is the cash flow from assets in year 4 as well as the NPV and the IRR?
Given the returns of two stocks J and K in the table below over the next 4 years. Find the expected return and standard deviation of holding a portfolio of 40% of stock J and 60% in stock K over the next 4 years:
Consider a US investor with $1000 to place in a bank deposit either in US and Great Britain. The one-year interest rate on bank deposits is 5% in GB and 1% in US. The one-year forward dollar-pound exchange rate is 1.2575 dollars per pound and the spo..
DMA Corporation has bonds on the market with 13.5 years to maturity, a YTM of 7.4 percent, and a current price of $1,059. The bonds make semiannual payments and have a par value of $1,000. What must the coupon rate be on these bonds? (Do not round in..
With respect to the differences between common and preferred stock, ________ stock has cumulative dividends meaning that, even if some divided payments are skipped, investors will still reap the dividends payments sometime in the future. Conversely, ..
The project requires the purchase of a new piece of equipment for a price of $25,000. What is the tax basis for the equipment?
A firm has a debt-equity ratio of 0.45 and a dividend payout ratio of 30 percent. The ratio of total assets to sales is constant at 1.25.If the firm would like to have a sustainable growth with a value of 6 percent per year, what profit margin must t..
what is the required return using the capital asset pricing model if a stock's beta is 1.2 and the individual, who expects the market to rise by 11.2%, can earn 4.4% invested in risk -free Treasury bill?
Jakob Industries buys materials from its suppliers on terms of 1/10, net 25. Thus, it receives 10 days of "free" trade credit, and it can obtain an additional 15 days of "costly" credit if it decides to forego discounts. What is the nominal annual co..
McDowell Industries sells on terms of 3/10, net 25. Total sales for the year are $1,561,000; 40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average, 74 days after their purchases. Assume 365 days in year for ..
Morning Star Inc. sold an issue of 30-year, $1,000 par value bonds to the public. The bonds has a 14.6% coupon rate and pays interest annually. It is now 7 years later. The current market rate of interest of the Morning Star INc. bonds is 11.7%. What..
A corporate bond pays 6 percent interest. How much would a municipal bond have to pay to be equivalent to this on an after-tax basis if you are in the 15 percent tax bracket?
How many years will it take the organization to recover the up-front fees? how much will the organization save each month by refinancing?
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