With the ground broken for the construction of its new home (the Nicol Building), the Sprott School of Business needs someone to supply it with 250 customized computers per year for the next 5 years, and you have decided to bid on the contract. It will cost you $125,000 to install the equipment necessary to start production. The equipment will be depreciated at 30 percent (class 10), and you estimate that it can be salvaged for 20.00% (of the original cost) at the end of the 5- year contract. Your fixed production costs will be $50,000 per year, and your variable production costs should be $600 per computer. You also need an initial investment in net working capital of $13,000. Assuming that your tax rate is 34 percent and you require a 12 percent return on your investment:

1. a) What is the depreciation tax shield in the third year of this project?

2. b) What is the present value of the CCA tax shield?

3. c) What is the minimum price that your company should bid per single computer?

Assuming you believe that Sprott School of Business will pay $975.00 per customized computer, what is the NPV of this project? Should you submit a bid given this new information?

Geary Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new machine press for $944,377 is estimated to result in $252,402 in annual pretax cost savings. The press falls in the MACRS five-year class (Refer to the MACRS table on page 277), and it will have a salvage value at the end of the project of $96,706. The press also requires an initial investment in spare parts inventory of $62,097, along with an additional $7,811 in inventory for each succeeding year of the project. If the shop's tax rate is 0.36 and its discount rate is 0.14, what is the total cash flow in year 4? (Do not round your intermediate calculations.)

(Make sure you enter the number with the appropriate +/- sign)

Compute the interest paid on a 2-year lease for a $27,805 car if the annual rate of depreciation is 13% and the lease's annual interest rate is 4.9%. Round your answer to the nearest dollar.

Firms which need short-term financing have a number of options: trade credit, bank loans, commercial paper, or foreign borrowing. What are the advantages and disadvantages of each source of short-term financing? For which kinds of firms is each source of short-term financing most appropriate?

Principles of Corporate Finance (12th Edition) Chapter 5, Problem 11P Calculate the NPV of each project for discount rates of 0%, 10%, and 20%. Plot these on a graph with NPV on the vertical axis and discount rate on the horizontal axis. I tried to input the values in the given formula and I am getting completely different answers can you please input the formula and see where I went wrong?

Alex has ksh12 million to invest for three months. The current spot rate of the Tsh is ksh0.062. The three months forward rate of the Tsh is Ksh0.064. The interest rate in Kenya is 18%per annum while in Tanzania is 28%per annum. Required Calculate the gain fromcovered interest arbitrage. .

How does the time value of money impact investment decisions?

Time value of money impacts investment decisions due to the fact that dollars on hand presently are worth more than payment expected in the future. This is due to inflation in the American economy. On hand dollars can be utilized to invest and earn capital gains.

2. The future value of an investment depends on what key factors?

The future value of an investment depends on the depreciation rate and economical factors.

3. How are stocks and bonds similar, and how are they different?

Stocks are shares of a company in which they gain monetarily. Bonds are debts. They are similar because they are both known as securities.

A firm is considering whether to lease or buy a machine that costs $100,000. The machine would be kept for three years. The firm’s cost of debt is 10% and its tax rate is 40%. If the machine is owned then the company would have to pay $10,000 per year in maintenance cost (payable at the end of the year). If the machine is leased then the maintenance will be taken care of by the lessor. If leased, the lease payments would be $35,000 at time zero and at the end of each of the next three years. Assume straight-line to a salvage value of $0 three years from now.

What is the net advantage to leasing if any?

Whitman Antique Cars Inc. has the following data, and it follows the residual dividend model. Some Whitman family members would like more dividends, and they also think that the firm's capital budget includes too many projects whose NPVs are close to zero. If Whitman reduced its capital budget to the indicated level, by how much could dividends be increased, holding other things constant?

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You are trying to evaluate an exotic two-year European option on TSLA. TSLA shares are currently trading at $200. Next year, TSLA shares will either increase by either 10% or decrease by 5%. In the following year, TSLA will either increase by 5% or decrease by 10% from the stock price at year 1. The risk-free rate is 5% per year. However, this isn’t a normal call option or put option. Instead, the option rewards you if the stock price doesn’t move very much in either direction. Specifically, if you exercise the option you will get: $25 – (|stock price - $210|) (as a refresher, the “|” symbol means the absolute value). What is the value of the option if it expires in 2 years, and is a European style option?

The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 18%, its before-tax cost of debt is 8%, and its marginal tax rate is 25%. Assume that the firm's long-term debt sells at par value. The firm’s total debt, which is the sum of the company’s short-term debt and long-term debt, equals $1,133. The firm has 576 shares of common stock outstanding that sell for $4.00 per share.

Assets Liabilities And Equity

Cash $ 120 Accounts payable and accruals $ 10

Accounts receivable 240    Short-term debt 53

Inventories 360    Long-term debt 1,080

Plant and equipment, net 2,160    Common equity 1,737

Total assets $2,880 Total liabilities and equity $2,880

Calculate Paulson's WACC using market-value weights. Do not round intermediate calculations. Round your answer to two decimal places.

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You are trying to value an option on DMH (Ducati). The stock price is currently $70. Next year the stock price will either increase or decrease by $10. The following year the stock price will either increase or decrease (from the year 1 value) by $5. One-year U.S. treasuries currently have an annual return of 4%. Assume that at a one-year U.S. treasury bought in year 1 (maturing in year 2) will have a one-year return of 5%. a. What is the value on a two-year European put option with a strike price of $78? b. What is the value of a two-year American put option with a strike price of $78 (assume you can only exercise at year 1 or year 2, not today)?

Project L costs $35,000, its expected cash inflows are $15,000 per year for 10 years, and its WACC is 14%. What is the project's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.

A project has annual cash flows of $5,500 for the next 10 years and then $7,000 each year for the following 10 years. The IRR of this 20-year project is 11.44%. If the firm's WACC is 9%, what is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest cent.

Explain in details please