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Bob Cratchit, a new analyst at Scrooge & Marley Inc., has prepared a capital budget for the Tiny Tim project. He is scheduled to present his analysis at a board meeting in one hour. Bob just received an email from his boss, Fred Fezziwig, indicating that the capital budget is missing a critical piece of machinery with a capital cost of $200,000. The machine would be purchased at the outset of the project (Year 0). The machinery is in Class 8 with a depreciation rate of 20%. The machine will be sold for $160,000 at the end of the two-year project. The tax rate is 35% and the weighted average cost of capital is 9%. No other element of the capital budget would be affected. Assume that all cash flows occur at year-end (except for the purchase of equipment).
What is the reduction in NPV associated with the inclusion of the missing machinery? Round your answer to the nearest dollar.
Explain how the credit crisis adversely affected many other people beyond homeowners and mortgage companies. Do you believe the impact of the credit crisis is still being felt today?
explain why as debt increases (in capital structure), eventually the WACC will increase (despite the fact debt is usually lower cost component cost of capital).
What does excellent customer service mean for the customer and the business.
If the firm uses a 9 percent discount rate, what is the present value of this annuity? Round to the nearest dollar.
You can buy a pipeline for the transportation of natural gas to market for 1,000,000. It has an expected life of 7 years and has a scrap value of 300,000.
Construct two financing plans-one conservative, with 65% of assets financed by long-term sources, and the other aggressive, with only 30% of assets financed by long-term sources.
What should be the initial price of the bond? (Take the present value of $1,000 for 17 years at 7 percent, using Appendix B.)
Would you rather own your own business independently or become a franchisee? Why?
(a) If two assets' returns are positively correlated, what is the covariance between the returns of these two assets?
Comprehensive Problem-Use what you have learned about the time value of money to analyze each of the following decisions:
The firm has annual sales of $36 million, its cost of goods sold represents 75% of sales, and its purchases 70% of cost of goods sold.
Jennifer executes a will that leaves all of her property to the local University. If Jennifer dies, who has ownership of the commercial building?
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