Reference no: EM132019592
Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,340,000; the new one will cost, $1,600,000.
The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $340,000 after five years. The old computer is being depreciated at a rate of $268,000 per year.
It will be completely written off in three years. If we don't replace it now, we will have to replace it in two years.
We can sell it now for $460,000; in two years, it will probably be worth $124,000. The new machine will save us $294,000 per year in operating costs. The tax rate is 40 percent, and the discount rate is 11 percent.
a-1 Calculate the EAC for the old computer and the new computer. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) EAC New computer $ Old computer $
a-2 What is the NPV of the decision to replace the computer now? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV $
|
Determine what is this constant growth rate
: Suppose a stock just paid a dividend of $1.50 per share. The dividend per share is expected to grow at a rate of 18 percent next year and 20% the following year
|
|
Should you replace the old machine
: The new machine will be depreciated on a three-year MACRS basis. The new machine has a 5-year life and a salvage value of zero at the end of this period.
|
|
What should the stock price be
: What should the stock price be? Comparing your answer to Part (a) what is the relationship between growth rate of dividends and stock price?
|
|
Compute the fundamental value of the note
: Compute the fundamental value of the note. Does the current price of the T 3.50 reflect its fundamental value?
|
|
What is the npv of the decision to replace the computer now
: Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,340,000; the new one will cost, $1,600,000.
|
|
Calculate average return of each stock
: Suppose stock A's rate of return are 5%, 12%, 8% and 11% and Stock B's rates of return are 7% -15% 18% and 25% over the four years period.
|
|
What are the new weights in your portfolio
: Suppose the next day you find that Stock A had a return of positive 5 percent, Stock B had a return of negative 2 percent, and Stock C had a return of positive
|
|
How much interest will you end up paying over the life
: Suppose that you take out a loan for $150000 to purchase a house. You are required to make monthly payments, and the APR is 4%.
|
|
What is the total holding period return on the bond
: What is the yield to maturity of a 6% annual coupon bond maturing in 4 years? (you have to compute the price first)
|