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A widget manufacturer currently produces 200,000 units a year. It buys widget lids from outside supplier at a price of $2 a lid. The plant manager believes that it would be cheaper make these lids rather than buy them. Direct production costs are estimated to be only $1.50 a lid. The necessary machinery would cost $150,000, and can be depreciated using 7-year MACRS schedule. This machine is expected to be operated for a 10 year period. The plant manager estimates that the operations would require additional working capital of $30,000 but argues that this sum can be ignored since it is recoverable at the end of 10 years. If the company pays tax at the rate of 35 percent and the opportunity cost of capital is 15 percent, would you support the plant manager's proposal? State clearly any additional assumptions that you need to make.
A STRIPS traded on April 1 2011, matures in 10 years on April 1 2021. Assuming a 5 percent yield to maturity, assume a face value of $100. What is the STRIPS price?
It is now January 1, 2012, and you are considering the purchase of an outstanding bond that was issued on January 1, 2008. It has a 7 percent annual coupon and had a 30-year original maturity. what rate of return would you probably earn, assuming you..
You have decided to diversify your investment portfolio across asset classes to reduce risk while maximizing return.
what is the capitalized equivalent cost of this investment at the rate of 13.6%?
Analyze the benefits of efficiencies and tax breaks in relation to leveraged buyouts
A company is considering its line. The project would last 3 years and has an annual investment of $200,000. Should they expand the line?
If the company paid a dividend of $3 last year and the equity cost of capital for the firm is 12%, what is maximum price you would be willing to pay for stock?
Michael's, Inc. just paid $2.60 to its shareholders as the annual dividend. Simultaneously, the company announced that future dividends will be increasing by 5.60 percent. If you require a rate of return of 9.8 percent, how much are you willing to pa..
Which of the following is true of a primary market? The primary risk of mortgageminus−backed securities is? ________.
Pennewell Publishing Inc. is a zero growth company. It currently has zero debt and its earnings before interest and taxes are $90,000. PP's current cost of equity is 10%, and its tax rate is 40%. The firm has 10,000 shares of common stock outstanding..
?$100 is received at the beginning of year? 1, $200 is received at the beginning of year? 2, and? $300 is received at the beginning of year 3. If these cash flows are deposited at 12? percent, their combined future value at the end of year 3 is? ____..
What similarities exist between experiences in the United States and Ireland during the 2007-2009 financial crises
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