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Comazzi Construction Company (CCC) is considering a project, which involves purchasing a utility drill. The drill will be used in the road construction division of the company. The price of the drill delivered is $30,000 today; however, it also cost $5,000 today to install the drill to make it complete to be used. The drill is in 5 year MACRS class life for depreciation. Due to the efficiency of the drill, labor cost of the division will be reduced by $10,000 per year and revenue of the division will be increased by $15,000 per year for the next six years. CCC tax rate is 34% and the company’s weighted average cost of capital is 12 percent. Please advise CCC, based on NPV and MIRR, whether to take this project or not. Explain your advice and approach in 5 lines and show your complete calculations.
Demonstrate why you believe the option is mispriced and develop a strategy to take advantage of the mispricing, assume you are correct with your estimate of historical volatility.
Offer some examples of expansion or growth opportunities in which companies might use capital budgeting methods to analyze.
A city plans to upgrade its storm water management infrastructure by installing new pipes. what is the capitalized worth of the project.
What is your profit at the current exchange rate? What is your profit if the exchange rate goes down by 10 percent? What is the break-even exchange rate?
Stock AAPL (Apple Inc.) sells for 98.15 now. The prices of a European call and European put on TD that expire in three months and have a strike price of $97.5 are $6.10 and $5.85, respectively. No dividend payment is expected. The continuously compou..
Stephen borrows $1000 at 5% for 20 years from Minglu. After 10 years, Minglu sells the rights to future payments to Aipeng for $P. Find P, if Aipeng plans to accumulate a sinking fund at 4% to replace P and desires a yield of 6%. Find the yield rate ..
What will be the nominal annual percentage cost of its non-free trade credit if it pays 110 days after the purchase?
Scandal Inc., plans to issue $5 million of bonds with a coupon rate of 8 percent and 15 years to maturity. The current market interest rates on these bonds are 7 percent. In one year, the interest rate on the bonds will be either 12 percent or 4 perc..
Which of the following factors does not affect a firm's business risk?
The nominal rate of return on the bonds of Stu's Boats is 9.25 percent. The real rate of return is 3.9 percent. What is the rate of inflation?
The payments are expected to go on indefinitely. Your relevant interest rate is 9%. What is the value of the growing perpetuity?
You are the portfolio manager for a mutual fund. Your fund has an expected return of 15% with a standard deviation of 24% and the T-bill rate is 3%.
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