QUESTION Thoma Pharmaceutical Company may buy DNA testing equipment costing $60,000. This equipment is expected to reduce labor costs of clinical staff by $20,000 annually. The equipment has a useful life of five years but falls in the three-year property class for cost recovery (depreciation) purposes. No salvage value is expected at the end. The […]
QUESTION Covan, Inc., is expected to have the following free cash flows: Year 1 2 3 4 p FCF 10 12 13 14 Grow by 4% per year a. Covan has 8 million shares outstanding, $3 million in excess cash, and it has no debt. If its cost of capital is 12%, what should its […]
QUESTION Carbide Chemical Company is considering the replacement of two old machines with a new, more efficient machine. It has determined that the relevant after-tax incremental operating cash flows of this replacement proposal are as follows:END OF YEAR0123Cash flows$404,424$86,890$106,474$91,612END OF YEAR45678Cash flows$84,801$84,801$75,400$66,000$92,400What is the projects net present value if the required rate of return is […]
QUESTION Elmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of dollars) ( see MyFinanceLab for the data in Excel format ): 1 Year 1 2 2 Revenues 125 160 3 Operating […]
QUESTION The Fresno Finial Fabricating Works is considering automating its existing finial casting and assembly department. The plant manager, Mel Content, has accumulated the following information for you: The automation proposal would result in reduced labor costs of $150,000 per year. The cost of defects is expected to remain at $5,000 even if the new […]
QUESTION You are an intern with Ford Motor Company in its corporate finance division. The firm is planning to issue $50 million of 12% annual coupon bonds with a ten-year maturity. The firm anticipates an increase in its bond rating. Your boss wants you to determine the gain in the proceeds of the new issue […]
QUESTION 1. If a six- month Treasury bill is purchased for $ 0.9675 on a dollar ( i. e., $ 96,750 for a $ 100,000 bill), what is the discount yield, the annual rate of interest, and the compound rate? What will these yields be if the discount price falls to $ 0.94 on a […]
QUESTION Assume today is August 1, 2010. Natasha Kingery is 30 years old and has a Bachelor of Science degree in computer science. She is currently employed as a Tier 2 field service representative for a telephony corporation located in Seattle, Washington, and earns $38,000 a year that she anticipates will grow at 3% per […]
QUESTION You need a 30-year, fixed-rate mortgage to buy a new home for $240,000. Your mortgage bank will lend you the money at a 6.35 percent APR for this 360-month loan. However, you can afford monthly payments of only $1,150, so you offer to pay off any remaining loan balance at the end of the […]
QUESTION You are evaluating two stocks, A and B. Their historical 3-year performance has been a return of E[r(A)] = 11% and E[r(B)] = 13%, with standard deviations (A) = 16% and (B) = 23%. The market has returned E[r(M)] = 12% with a standard deviation of the market of (M) = 20%. You estimate […]
