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The Norcross Fiber Company is considering automating its piece-goods screen-printing system at a cost of $40,000. The firm expects to phase out the new printing system at the end of 5 years due to changes in style. At that time, the firm could scrap the system for $2,000 in today's dollars. The expected net savings (revenue - expenses) due to automation also are in today's (constant) dollars: Year 1 $26,000; Year 2 $14,000; Years 3-5 $13,000. The system qualifies as a 5-year MACRS property and will be depreciated accordingly. The general inflation rate over the next 5 years is 5% per year. Asume the net savings and the scrap value are subject to this inflation rate. The firm's inflation-free MARR is 11%. The firm's tax rate is 38%. What is the net present worth of this automation system.
Use the present value formula to determine the amount to be invested? now, or the present value needed.
COST OF COMMON EQUITY Percy Motors has a target capital structure of 40% debt and 60% common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 9%, and its tax rate is 40%. Percy's CFO estimates that the comp..
Prepare a report to management, highlighting the advantages and disadvantages of self-constructed assets. Suggest to management two advantages of purchasing the assets from an outside organization, as opposed to constructing the assets internally.
In perfect capital markets, how does leverage affect the cost of equity? a. In perfect capital markets, levered equity's cost increases with the debt-equity ratio. b. In perfect capital markets, leverage increases the cost of levered equity by the co..
Waldo expects to receive the following payments: year 1 = $50,000; year 2 = $28,000; year 3 = $12,000. All of this money will be saved for his retirement. If he can earn an average annual return of 10.5 percent, how much will he have in his account 2..
List and describe three modeling techniques that meet the informational needs of stakeholders to ensure full coverage of a business domain.
Moonscape has just completed an initial public offering. The firm sold 4 million shares at an offer price of $10 per share. The underwriting spread was $.60 a share. The price of the stock closed at $14 per share at the end of the first day trading. ..
What would the risk-free rate have to be for the two stocks to be correctly priced relative to each other?
The tax rate is 34 percent and the required return on the project is 12 percent. What is the operating cash flow for the project in year 2?
How much would the market price change if the prevailing interest rate rose to 10.5%?
Mr. Alessandro Nesta, Financial Manager of Potenza Company, is measuring the cost of capital for the company.
john and Mary work for a direct marketing firm. they make calls to customers for a local carpet cleaning service.
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