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1. You are evaluating a new machine that has a four-year life and costs $100,000. The pretax operating costs of operating the machine are $15240 per year. Use straight-line depreciation to zero over the project's life and assume an after-tax salvage value of $13,200 at the end of four years. If your tax rate is 34 percent and your discount rate is 7 percent. What is the Equivalent Annual Cost (EAC)?
a. $23231
b. $23651
c. $35558
d. $28108
2. You are considering a 3-year project with an initial cost of $738,000. The project will not directly produce any sales but will reduce operating costs by $265,000 a year. The equipment is depreciated straight-line to a zero book value over the life of the project. At the end of the project the equipment will be sold for an estimated $48,000. The tax rate is 34%. The project will require $23,000 in extra inventory for spare parts and accessories at its beginning, which will be recuperated at the end of the project. What is the NPV of the project if the required rate of return is 9 percent?
a. $-88799
b. $-42784
c. $-64336
d. $-99857
e. $-115805
Assuming investors require a 16% rate of return on their investment, calculate the expected dividend yield.
Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years.
EMC Corporation has never paid a dividend. Its current free cash flow of $550,000 is expected to grow at a constant rate of 4.9%. The weighted average cost of capital is WACC = 12.25%. Calculate EMC's estimated value of operations.
A U.S. - based firm is planning to make an investment in Europe. The firm estimates that the project will generate cash flows of 100,000 euros after one year. If the one-year forward exchange rate is $1.35/euro and the dollar cost of capital is 10%, ..
What is the rate of return that the company expects to earn on this project after taking flotation costs into consideration?
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What are some of the critiques of Behavioral Finance?
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When Maria Acosta bought a car 2.5 years ago, she borrowed $10,000 for 48 months at 7.2% compounded monthly. Her monthly payments are $240.39, but she'd like to pay off the loan early. How much will she owe just after her payment at the 2.5-year mark..
Besides NPV and IRR what other capital budgeting techniques are utilized by businesses and what are their weaknesses?
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