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Meals on Wings Inc., which supplies prepared meals for corporate aircraft, needs to purchase new broilers. The new broilers would replace broilers purchased 10 years ago for $105,000, which are being depreciated on a straight-line basis to a zero salvage value (15-year depreciable life). The old broilers can be sold today for $63,000. The new broilers will cost $202,000, installed (not counting funds already spent), and will be depreciated using straight-line depreciation over their 5-year life. They will be sold at their book value at the end of the 5th year. The firm expects to increase its revenues by $27,000 per year if the new broilers are purchased, but cash expenses will also increase by $3,000 per year. Annual interest expense will be $2,000, and net working capital will increase by $5,000. The new broilers will occupy space currently leased to another firm for $530 per month, and $5,000 has already been spent preparing the building for new broilers. The firm's tax rate is 40%. What are the terminal year cash flows? Round your answers to the nearest dollar. $22,744 $23,944 $27,442 $28,944 $32,442
Savvy Supermarkets is a chain of grocery stores that is currently financed with 12.5% debt and 87.5% equity. The CEO of Savvy decides that the proportion of debt in the current capital structure is too low because investors in Savvy’s stock demand a ..
If a firm plans to issue new stock, flotation costs (investment bankers' fees) should not be ignored. There are two approaches to use to account for flotation costs. The first approach is to add the sum of flotation costs for the debt, preferred, and..
Trivoli Industries plans to issue perpetual preferred stock with an $11.00 dividend. The stock is currently selling for $99.50; but flotation costs will be 5% of the market price, so the net price will be $94.53 per share. What is the cost of the pre..
Jensen's has expected earnings before interest and taxes of $6,200. Its unlevered cost of capital is 14 percent and its tax rate is 34 percent. The firm has debt with both a book and a face value of $2,500. This debt has a 9 percent coupon and pays i..
You just won the magazine sweepstakes and opted to take unending payments. The first payment will be $21,500 and will be paid one year from today. Every year thereafter, the payments will increase by 2.5 percent annually. What is the present value of..
You purchased 1,000 shares of the New Fund at a price of $20 per share at the beginning of the year. You paid a front-end load of 4.25%. The securities in which the fund invests increase in value by 16.75% during the year. The fund's expense ratio is..
Formulate and solve the location problem by assuming 200 working days in a year and a transport cost per km equal to € 0.95.
XYZ, Inc. is considering a capital budgeting project under three scenarios. If conditions are excellent, the NPV of the project is projected to be $3,000; under fair conditions, the NPV is projected at $950; and under unfavorable conditions, the NPV ..
A stock has had the following year-end prices and dividends: Year Price Dividend 1 $ 43.23 - 2 48.21 $ .39 3 57.13 .42 4 45.21 .55 5 52.13 .60 6 61.21 .68 What are the arithmetic and geometric returns for the stock?
A portfolio is comprised of 20% stock, 40% bonds, 40% mutual funds. The stock is expected to have a 10% return, the bonds a 5% return, and the mutual funds a 7% return. What is the expected return on the portfolio?
Suppose 2-year Treasury bonds yield 5.9%, while 1-year bonds yield 6.8%. r* is 1.75%, and the maturity risk premium is zero. Using the expectations theory, what is the yield on a 1-year bond, one year from now? Calculate the yield using a geometric a..
Find the NPV and PI of a project that costs $1,500 and returns $800 in year one and $850 in year two. Assume the project’s cost of capital is 8%.
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