• Trademill Co. is planning to replace its existing machinery with new and better technology ones with higher capacity. Old machinery bought 4 years ago, with a price of 900,000, life of 10 years, zero salvage value, and can be sold in the market for 280,000. New machinery has a total cost of 1,800,000, no salvage value and 6 years life. It is expected to increase sales by 1,200,000, CGS stays at its 40% level, and additional working capital of 380,000 required. Tax is 25%, discount rate 12%. Should the replacement be made? Use NPV for decision making. LETS SOLVE TOGETHER!
Q: Compute ROE Selected balance sheet and income statement for Facebook Inc. follows. $ millions Dec.…
A: ROE return on equity is one of important measure of the profitability and this show how much is the…
Q: der the information for assets A, B, and C below: State Boom Average Bust Probability 0.2 0.4 0.4…
A: Portfolio is the combination of the stocks and return on portfolio depends on the stocks in the…
Q: A bond's duration is 4.5 and its convexity is 87.2. If interest rates rise 100 basis points, what is…
A: Convexity of the bond is not linear and helps in determining the sensitivity of the bond's duration…
Q: QUESTION 9 Investors can form complete portfolios out of 2 assets: a T-bill and a risky portfolio P.…
A: Solution:- Risk averse means a person who hates risk. A risk-averse person does not want to take as…
Q: Assume that the operations manager of a small semi-conductor manufacturer wants to run a Simulation…
A: We have to undertake random number based simulation on costs, demand, revenue and profits. The…
Q: K-Way Limited (Ltd), a softdrink manufacturer has the option to invest in machinery for projects A…
A: Payback The method used in capital budgeting to help investors calculate the time it will take for…
Q: Which of the following statements(s) is (are) false regarding preferred stock? a. Preferred…
A: Preferred stock The type of shares that receive a fixed dividend from the company is known as…
Q: You build a portfolio containing stocks ?A and ?B only and you have shorted ?B such that its…
A: Expected return of the portfolio means the mean of the probability distribution of investment…
Q: The interest rates over the next four (4) years are as follows: The annual effective interest rate…
A: The present value of money is the comparable worth of money now that will be received in the future…
Q: QUESTION 7 My complete portfolio includes a risk-free asset and a risky portfolio. The risk premium…
A: Solution:- Risk premium means the amount of extra premium over the risk free return demanded by the…
Q: When real estate agents sell their own, rather than clients', houses, they leave the houses on the…
A: A set of statements have been made regarding the commission on sale of a third party house vs own…
Q: State of the Economy Recession Below Average Average Probability 0.2 0.1 0.3 % Return on T-Bills,…
A: State of the Economy Probability T-Bills Philips Pay-up Rubber made Market Index Recession 0.2 7%…
Q: Here and Gone, Inc., has sales of $21,332,097, total assets of $12,393,090, and total debt of…
A: Profitability ratio shows the ability of the company to generate income relative to its revenue,…
Q: Sam would like to visit her family in New Zealand. She figures she will need at least $9,000 for the…
A: Compounding periods refers too the number of periods for which interest is compounded. If the period…
Q: QUESTION 5 An investor invests 70% of her wealth in a risky asset with an expected rate of return of…
A: Solution:- Expected return means the rate of return earned from portfolio. It is the weighted…
Q: When Joe and Sarah graduate from college, each expects to work a total of 45 years. Joe begins…
A: As per the given information: Joe and Sarah expected to work - 45 yearsJoe starts investing…
Q: Kindly explain Question 3 by breaking down the information step by step
A: Given: Particulars Pan Elixir Rebound Cheers Think local Last year dividend $2.50 $0.50 $1.00…
Q: Steinberg Corporation and Dietrich Corporation are identical firms except that Dietrich is more…
A: The value of a firm refers to the measurement of the market value of the business in economic terms.…
Q: Simple Simon's Bakery purchases supplies on terms of 1.5/10, net 30. If Simple Simon's chooses to…
A: Trade credit refers to the purchase of goods or services by the customers from the seller and paid…
Q: Computech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence,…
A: Non constant Growth Year 3 Dividend, D3 $1.50 Supernormal growth rate, gs 33% Normal…
Q: Calculate the total payoff amount if you doubled the original $30 monthly payment to $60 per month.…
A:
Q: The risk-free rate is 3.2 percent. Stock A has a beta = 1.9 and Stock B has a beta = 1.3. Stock A…
A: A potential investment's beta is a measurement of the risk an investment will bring to a portfolio…
Q: entory balance was $1.67
A: First of all, find ITOR (Inventory Turnover Ratio) = Cost of Goods Sold COGS/ Average Inventory.…
Q: Suppose you intend to purchase a house worth $239,900 with a 30-year fixed rate mortgage. You have a…
A: Solution: When an amount is borrowed, it can either be repaid as a lump sum payment or in…
Q: way Cabooses just paid its annual dividend of $2.90 per share. company has been reducing the…
A: Required rate of return on equity depends on the dividend paid by stock and also capital gains that…
Q: The following factors were identified regarding Stock B. the stock sensitivity to each factor and…
A: Expected return on asset using multiple factor model is calculated as Expected return on asset = Rf…
Q: The interest rates over the next four (4) years are as follows: The annual effective interest rate…
A: Present value is the equivalent value of money today that is to received in the future based on time…
Q: Bank two currently has $500 million in transaction deposits. The bank has $65 million in reserves.…
A: Required reserve is the minimum cash balance that the bank has to maintain according to the…
Q: 12-23 The Shrieves Company's most recent EPS was $6.50; EPS was $4.42 five years ago. The company…
A: Earnings per share is an indicator of the profit earned by the company on a per share basis.…
Q: The cash flow diagram below shows the net cash generated (A) year with initial (1) investment…
A: The minimum acceptable rate of return should be one that causes the present value of all cash…
Q: Find the lump sum deposited today that will yield the same total amount as this yearly payment made…
A: Present value of annuity is the current value of the future payments that are calculated using the…
Q: Consider an A-rated bond and a B-rated bond. Assume that the one-year probabilities of default for…
A: Greater is the correlation of default between the securities higher is the joint probability of…
Q: Wakanda Airlines Limited is contemplating leasing an aircraft costing $90 million. The aircraft has…
A: The net advantage of leasing is calculated by comparing the total cost and benefits of the two…
Q: A zero coupon bond with a face value of $21,000 matures in 11 years. What should the bond be sold…
A: Zero Coupon bonds: Bonds that experience more fluctuations in market value than coupon bonds and…
Q: Fill in the missing information in the following table. Assume that Portfolio AB is 40 percent…
A: Standard deviation helps understand the risk of the indiviual security and for the overall…
Q: payment occurs in year 1, the interest rate is 10% and the present value at year zero for the…
A: Present value The value of future money at the present is known as the present value of money. The…
Q: Given the cash flows from the following information, find the payback period.…
A: Year Cash Flow 0 $ -1,00,000.00 1 $ 20,000.00 2 $…
Q: 2. information In Simpleland, there are only two risky assets in the market, A and B. The and CAPM…
A: We have the following information -
Q: Here are the most recent balance sheets for Country Kettles, Incorporated. Excluding accumulated…
A: Transactions that increase the cash balance are classified as sources of cash, while transactions…
Q: Project L requires an initial outlay at t = 0 of $70,000, its expected cash inflows are $15,000 per…
A: MIRR is the modified form of internal rate of return in which it is assumed that the cost of capital…
Q: Your bank has the following balance sheet: Assets Reserves Securities Loans Liabilities Checkable…
A: Data given: Checkable deposits =$200 million Unexpected deposit outflow=$50 million Required reserve…
Q: A project has annual NPV break-even level of sales of $3,000,000. The annual net cash flows can be…
A: NPV means net present value. It is the sum of all present values of future cash flows.
Q: Explain the terms ‘invoice discounting’ and ‘factoring’ and the advantages of these services to the…
A: Both the terms "invoice discounting" and "factoring" apply to financial services in which the…
Q: A bond that had a 20-year original maturity with 1 year left to maturity has more price risk than a…
A: The bonds are the debt instruments issued either by the government or by the corporation. The bond…
Q: Documentary L/C requires the evidences for the shipment of the goods such as commercial invoices…
A: We have a statement regarding Documentary L/C. We have to find out if the statement is true or…
Q: You have a $1,400 balance on your 15% credit card. You have lost your job and been unemployed for 6…
A: Effective rate of interest The real return you get from an investment when compounding is taken…
Q: Bond Valuation with Annual Payments Jackson Corporation's bonds have 15 years remaining to…
A: Solution:- Bond price means the price at which the bond is currently trading in the market. We…
Q: K An investor purchased a 364-day, $100,000.00 T-bill on its issue date for $97,915.81. After…
A: A T-bill is a debt instrument used by the government to raise short-term capital. The usual duration…
Q: The earnings, dividends, and stock price of BB Company are expected to grow at 7% per year after…
A: The company is divided into the common as well as preference shareholders. The equity shareholders…
Q: You have $400,000 saved for retirement. Your account earns 6% interest. How much will you be able to…
A: Monthly interest rate = Annual rate/Frequency of compounding in a year = 0.06/12 = 0.005 Number of…
Step by step
Solved in 7 steps
- Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?Although the Chen Company’s milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $110,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $19,000 per year. It would have zero salvage value at the end of its life. The project cost of capital is 10%, and its marginal tax rate is 25%. Should Chen buy the new machine?Bailey, Inc., is considering buying a new gang punch that would allow it to produce circuit boards more efficiently. The punch has a first cost of $100,000 and a useful life of 15 years. At the end of its useful life, the punch has no salvage value. Labor costs would increase $2,000 per year using the gang punch but raw material costs would decrease $12,000 per year. MARR is 5%/ yr. Solve, a. What is the internal rate of return of this investment? b. What is the decision rule for judging the attractiveness of investments based on internal rate of return? c. Should Bailey buy the gang punch?
- The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $59,000. The machine would replace an old plece of equipment that costs $15,000 per year to operate. The new machine would cost S7,000 per year to operate. The old machine currently In use could be sold now for a salvage value of $25,000. The new machine would have a useful life of 10 years with no salvage value. Requlred: 1. What Is the annual depreclation expense associated with the new bottling machine? 2. What Is the annual Incremental net operating Income provided by the new bottling machine? 3. What is the amount of the Initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place I.e. 0.123 should be consldered as 12.3%.) 1. Depreciation expense 2. Incremental net operating income Initial investment 4. Simple rate of return %Pinky Company plans to buy a new machine to increase its plant's productive capacity. The new machine's estimated installed cost is P 50,000. It is expected to have no salvage value at the end of its useful life of 5 years. Based on Pinky's projections, the new machine can produce 100,000 units of product per year. Because of the high demand for this product for which thr company sells at L5 each (cash), it is expected that all units produced will be sold. Relevant production, selling and administrative costs related to the product amount to P3 each, exclusive of depreciation. The company pays income tax at rate of 30% of taxable income. Required: a Accounting net income from the new machine. b. The net cash inflows from the project.Beaver Corporation is investigating the purchase of a new threading machine that costs $18,000. The machine would save about $4,000 per year over the present method of threading component parts and would have a salvage value of about $3,000 in 6 years when the machine would be replaced. The company's required rate of return is 12%. The machine's net present value is closest to: A. B. $1,556 C. $11,000 D. $8,000
- Trask Industries, Inc. is considering replacing its old machine with a book value of P150,000 and still has aremaining useful life of three (3) years. The old machine will be replaced with a new one that will costP375,000, with a three-year useful life and no salvage value.The annual operating costs of the old machine amount to P180,000, which can be reduced by 55% if a newmachine is acquired. The old machine will have no disposal value after three (3) years but can be disposedof now at P60,000. a. Ignoring the time value of money and income taxes, determine the differential cost.b. Should the machine be retained or replaced?The Fine Clothing Factory wants to replace an old machine with a new one. The old machine can be sold to a small factory for R10 000. The new machine would increase annual revenue by R150 000 and annual operating expenses by R60 000. The new machine would cost R360 000. The estimated useful life of the machine is 12 years with zero salvage value. Using Average rate of return (ARR), Should Fine Clothing Factory purchase the machine if management desired rate of return of 15% on all capital investments? Show all the calculations and motivate your answer.Bailey, Inc., is considering buying a new gang punch that would allow it to produce circuit boards more efficiently. The punch has a first cost of $100,000 and a useful life of 15 years. At the end of its useful life, the punch has no salvage value. Labor costs would increase $2,000 per year using the gang punch, but raw material costs would decrease $12,000 per year. MARR is 5%/ year. a. What is the discounted payback period for this investment? b. If the maximum attractive DPBP is 3 years, what is the decision rule for judging the worth of this investment? c. Should Bailey buy the gang punch based on DPBP?
- Bailey, Inc., is considering buying a new gang punch that would allow them to produce circuit boards more efficiently. The punch has a first cost of $105,000 and a useful life of 15 years. At the end of its useful life, the punch has no salvage value. Annual labor costs would increase $3,000 using the gang punch, but annual raw material costs would decrease $16,000. MARR is 4.0 %/year. a)What is the present worth of this investment? b)What is the decision rule for judging the attractiveness of investments based on present worth? c)Should Bailey buy the gang punch?Sumami Ink considers replacing its old machine. The old machine’s current market value is $2 million and its current book value is $1 million. If not sold, it will have a market value at the end of 5 years of $200,000 and a book value of zero. A replacement new machine costs $3 million, and at the end of the five years it will have a market value of $500,000, and will be fully depreciated by the straight‐line method. Assume that the asset class will be closed, and the corporate tax rate is 34%. What is the total investment cash flow in year 0 and the total investment cash flow by the end of year 5? Multiple Choice -$1000K & $198K respectively. -$3000k & $500k respectively. -$1000K & $300K respectively. -$1,340k & $300k respectively. -$1,340k & $198k respectively. -$5000k & $700k respectively.Sala Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine Purchase Price $300,000 $600,000 Accumulated Depreciation 90,000 -0- Annual operating costs $240,000 $180,600 If the old machine is replaced, it can be sold for $30,000. Both machines have a remaining useful life of 10 years. The net advantage (disadvantage) of replacing the old machine is Group of answer choices $30,000 12,000 $24,000 $120,600