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Your firm, Agrico Products, is considering a tractor that would have a net cost of $36,000, would increase pre-tax operating cash flows (i.e., sales - operating costs excluding depreciation) before taking account of depreciation by $12,000 per year, and would be depreciated on a straight-line basis to zero over 5 years at the rate of $7,200 per year, beginning the first year. (Thus annual cash flows would be $12,000, before taxes, plus the tax savings that result from $7,200 of depreciation.) The managers are having a heated debate about whether the tractor would actually last 5 years. The controller insists that she knows of tractors that have lasted only 4 years. The treasurer agrees with the controller, but he argues that most tractors actually do give 5 years of service. The service manager then states that some actually last for as long as 8 years.
Given this discussion, the CFO asks you to prepare a scenario analysis to determine the importance of the tractor's life on NPV. Use a 40 percent marginal federal-plus-state tax rate, a zero salvage value, and a WACC of 10 percent. Assuming each of the indicated lives has the same probability of occurring (probability = 1/3), what is the tractor's expected NPV?
Firm Z is evaluating a proposal to extend credit to a group of new customers. The new customers will generate an average of $90,000 per day in new sales.
After 5years, Caldwell's dividend is expected to grow at a constant 4% rate, indefinitely. Investors require a 10% rate of return.
1 the capital asset pricing model capm relates the risk return trade-off of individual assets to market returns so that
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What is the future value of a $570 annuity payment over five years if interest rates are 9 percent?
What percentage could EBIT decline next year before the company's times interest earned ratio would fall below 1.0?
Suppose that you placed 1523 in a bank account that earned an APR of 13%. How much would be on deposit after 9 years with semi-annual compounding?
Four years from now you will receive the first of tenannual $15,000 payments. The interest rate is 10%. What is the present value of this cash flow stream
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What are and what is the effect of negative interest rate. Each report will be two students are doing paper 17 pages on the topic with appropriate formatting.
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