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One year ago, your company purchased a machine used in manufacturing for $115,000. You have learned that a new machine is available that offers many advantages and that you can purchase it for $160,000 today. The CCA rate applicable to both machines is 20%; neither machine will have any long-term salvage value. You expect that the new machine will produce earnings before interest, taxes, depreciation, and amortization (EBITDA) of $35,000 per year for the next ten years. The current machine is expected to produce EBITDA of $25,000 per year. All other expenses of the two machines are identical. The market value today of the current machine is $50,000. Your company's tax rate is 40%, and the opportunity cost of capital for this type of equipment is 12%. Should your company replace its year-old machine?
What is the NPV of replacement?
To purchase your home, you borrow $437,000 on a 30 year mortgage priced at 8.6%. As with most home mortgages, the loan requires monthly payments. You decide to pay an extra $310 each month. If you pay the extra amount each and every month, how many y..
Compute the value of this stock with a required return of 12.9 percent.
St. Benedict's Hospital exercise: . 6.5 Now, assume that the hospital uses the step-down method for cost allocation, with salary dollars as the cost driver for General Administration, housekeeping labor hours as the cost driver for Facilities, and pa..
Merger Valuation Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt. Vandell's debt interest rate is 7.5%. Assume that the risk-free rate..
Diagram a protective put strategy. Explain how and why a protective put is like buying insurance.
On March farmer Jacob needs to decide how many acres of corn to plant based on expected cash price at harvest (November).
The depreciation expense each year is $17,930 and the tax rate is 38 percent. What is the annual operating cash flow?
Andre established an irrevocable trust to benefit his daughter Lilly for life, and his two grandsons at Lilly's death.
Pisa? Pizza, a seller of frozen? pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no trans fats. The firm expects that sales of the new pizza will be $19 million per year. Assume customers..
A closed-end fund starts the year with a net asset value of $14. By year-end, NAV equals $14.30. At the beginning of the year, the fund is selling at a 4% premium to NAV. By the end of the year, the fund is selling at a 9% discount to NAV. What would..
An investor has two bonds in his portfolio that both have a face value of $1,000 and pay a 9% annual coupon. Bond L matures in 17 years, while Bond S matures in 1 year. What will the value of the Bond L be if the going interest rate is 6%? Round your..
Construct NPV profiles for Plans A and B, identify each project's IRR, and show the approximate crossover rate.- Does this imply that the WACC is the correct reinvestment rate assumption for a project's cash flows?
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