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Frank’s is analyzing a 6-year project that requires $578,000 in equipment to start the project. This cost will be depreciated on a straight-line basis to a zero book value over the life of the project. At the end of the project, this equipment is expected to have an after tax salvage value of $123,000. The projected annual sales are $729,000 and the combined annual fixed and variable costs are $598,000. The tax rate is 35 percent. The project will reduce the firm’s inventory by $34,000 over the life of the project. What is the project’s initial cash flow? 1. -$544,000 2. -$563,000 3. -$578,000 4. -$612,000
Chalheim Sisters Inc. has always paid out all of its earnings as dividends, hence the firm has no retained earnings. This same situation is expected to persist in the future. The company uses the CAPM to calculate its cost of equity, its target capit..
St. Johns River Shipyard's welding machine is 15 years old, fully depreciated, and has no salvage value. However, even though it is old, it is still functional as originally designed and can be used for quite a while longer. The applicable corporate..
Your firm is contemplating the purchase of a new $620,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $68,000 at the end of that time. You will be able to reduce wo..
On November 1, Marjorie’s Clothing Store accepted a $5,200, 81%, 90-day note from Mary Rose in granting her a time extension on her On January 13, Marjorie discounted the note at Seawater Bank, which charged a 10% discount rate. What were the proceed..
Thatcher Corporation’s bonds will mature in 10 years. The bonds have a face value of $1000 and an 8% coupon rate, payable semiannually. The price of the bonds is $1100. The bonds are callable in 5 years at a call price of $1050. What is their yield t..
What are the potential differences in cash flow for a machine that is highly automated versus a machine that requires more employee supervision and ongoing input to run it? How will these different aspects of the new machine affect the final decision..
Sixx AM Manufacturing has a target (market value) debt equity ratio of 0.6. Its cost of equity is 19 percent, and its cost of debt is 9 percent. If the tax rate is 34 percent, what is the company's WACC?
John purchased a house for $300,000 and seeks an loan. His lender presents two options; 80% LTV at 4% or 90% LTV a 5%. Both loans are paid monthly and have a 30 year terms. What is the incremental cost of borrowing the additional funds? How would you..
The MerryWeather Firm wants to raise $13 million to expand its business. To accomplish this, the firm plans to sell 20-year, $1,000 face value zero-coupon bonds. The bonds will be priced to yield 7 percent. What is the minimum number of bonds the fir..
What kind of features or options hedges would be called for the following situation? Caufield thrift association finds that it's assets have an average duration of 1.5 years and is liabilities have an average duration of 1.1 years. The ratio of liabi..
You work for a small, local telecommunications company. In five years, the company plans to undertake a major upgrade to its servers and other IT infrastructure. Management estimates that it will need up to $450,000 to cover all related costs; If you..
Your company is considering the replacement of an old delivery van with a new one that is more efficient. The old van cost $40,000 when it was purchased 5 years ago. The old van is being depreciated using the simplified straight -line method over a u..
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