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You must evaluate a proposal to buy a new milling machine. the base price is $108,000, and shipping and installation costs would add another $12,500. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $65,000. the applicable depreciation rates are 33%, 45%, 15%, and 7%. The machine would require a $5,500 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline buy $44,000 per year. The marginal tax rate is 35%, and the WACC is 12%. Also, the firm spent $5,000 last year investigating the feasibility of using the machine.
What is the project's annual cash flow for Year 3?
your firm is expanding into europe and your department head has asked you to put together a report on monetary unions
A three-year continuous annuity pays a total of $100 during the first year, $400 during the second year, and $1,000 during the third year. Within each year, the payments are made continuously and evenly throughout the year. The effective annual inter..
Draw a time line to show the cash flows of the project and compute the project's payback period, net present value, profitability index, and internal rate of return.
Terrier Company is in a 40 percent tax bracket and has a bond outstanding that yields 10 percent to maturity. b. Assume that the yield on the bond goes down by 1 percentage point, and due to tax reform, the corporate tax rate falls to 25 percent. Wha..
If you had to make a recommendation regarding the pricing of this order, what is the best estimate of the price (in CHF) you can recommend that management charge if it wants to just cover its costs and profit objectives?
Suppose you write 30 put option contracts with a $40 strike. The premium is $2.40. Evaluate your potential gains and losses at option expiration for stock prices of $30, $40, and $50.
Corporate bonds issued by Johnson Corporation currently yield 12%. Municipal bonds of equal risk currently yield 7%. At what tax rate would an investor be indifferent between these two bonds?
A 5-year bond with a 4.45% coupon sells for $107.48. A 7-year bond with a 5.75% coupon sells for 116.564. The conversion factor for the 5-year bond is 0.933891 while the 7-year bond is 0.98588. Assume that the yields for both bonds are 6% and that co..
A bank will return $4500 on a 10-year certificate of deposit that originally cost $125. What interest rate, compounded annually, is the bank paying? Determine the effective interest rate corresponding to 4.75% per year, compounded continuously.
Over a 30-year period an asset had an arithmetic return of 13 percent and a geometric return of 10.5 percent. Using Blume's formula, what is your best estimate of the future annual returns over the next 10 years?
Suppose the government increases spending by $30 billion and raises taxes at by $20 billion at the same time. Then,
Please draw the efficient frontiers and discuss the relevant implication under the following assumptions: (a) Risk free assets are possible and short sale is not allowed; (b) Risk free assets are impossible and short sale is not allowed. Please discu..
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