One year ago, your company purchased a machine used in manufacturing for $95,000.You have learned that a new machine is available that offers many advantages and that you can purchase it for$160,000 today. The CCA rate applicable to both machines is 20%; neither machine will have any long-term salvage value. You expect that the new machine will produce earnings before interest, taxes, depreciation, and amortization (EBITDA) of $55,000 per year for the next ten years. The current machine is expected to produce EBITDA of $25,000 per year. All other expenses of the two machines are identical. The market value today of the current machine is $50,000.Your company's tax rate is 38%, and the opportunity cost of capital for this type of equipment is 11%.
Should your company replace its year-old machine?
In: Finance
Stock Valuation and Analysis :
Vivint Solar, Inc. (VSLR)
NYSE - Nasdaq Real Time Price. Currency in USD
Assignment Content
Top of Form
Resource
Purpose of Assignment
The purpose of this assignment is to allow students the opportunity to research a Fortune 500 company stock using the popular online research tool, Yahoo Finance. The tool allows the student to review analyst reports and other key financial information necessary to evaluate the stock value and make an educated decision on whether to invest.
Assignment Steps
Select a Fortune 500 company from one of the following industries:
Access Yahoo Finance and enter the company name.
Review the financial information and statistics provided for the stock you selected and answer the following:
Explain in 700 words why you would or would not recommend investing in this stock.
Submit your assignment.
In: Finance
Judy’s Rugs, Inc. needs an additional $50,000 to support an expansion of fixed assets. A banker has offered to loan the money at 14 percent interest but also requires a compensating balance of 25 percent of the loan amount. What is the effective rate of the one year loan?
In: Finance
You have been asked by the president of the Farr Construction Company to evaluate the proposed acquisition of a new earth mover. The mover’s basic price is $200,000, and it would cost another $30,000 to modify it for special use. Assume that the mover falls into the MACRS 5-year class, it would be sold after 4 years for $60,000, and it would require an increase in net operating working capital (spare parts inventory) of $10,000. The earth mover would have no effect on revenues, but it is expected to save the firm $50,000 per year in before-tax operating costs, mainly labor. The firm’s marginal federal-plus-state tax rate is 40 percent and the project’s cost of capital is 10 percent. Evaluate the project using the NPV rule and the IRR rule.
In: Finance
The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 7% per year for each of the next three years and 6% thereafter.
The maturity risk premium (MRP) is determined from the formula: 0.1(t – 1)%, where t is the security’s maturity. The liquidity premium (LP) on all Sacramone Products Co.’s bonds is 0.55%. The following table shows the current relationship between bond ratings and default risk premiums (DRP):
|
Rating |
Default Risk Premium |
|---|---|
| U.S. Treasury | — |
| AAA | 0.60% |
| AA | 0.80% |
| A | 1.05% |
| BBB | 1.45% |
Sacramone Products Co. issues 13-year, AA-rated bonds. What is the yield on one of these bonds? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average.
11.58%
11.03%
10.38%
5.35%
Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true?
The yield on U.S. Treasury securities always remains static.
Higher inflation expectations increase the nominal interest rate demanded by investors.
In: Finance
George Taylor, owner of a toy manufacturing company, is considering the addition of a new product line. Marketing research shows that gorilla action figures will be the next fad for the six-to ten-year-old age group. This new product line of gorilla-like action figures and their high-tech vehicles will be called Go-Rilla. George estimates that the most likely yearly incremental cash flow will be $26,000. There is some uncertainty about this value because George’s company has never before made a product similar to the Go-Rilla. He has estimated the potential cash flows for the new product line along with their associated probabilities of occurrence. His estimates follow
| Go-Rilla Project | ||
| Cash Flows | Probability of Occurrence | |
| $20,000 | 1% | |
| $22,000 | 12% | |
| $24,000 | 23% | |
| $26,000 | 28% | |
| $28,000 | 23% | |
| $30,000 | 12% | |
| $32,000 | 1% |
a. Calculate the standard deviation of the estimated cash flows.
b. Calculate the coefficient of variation.
c. If George’s other product lines have an average coefficient of variation of 12 percent, what can you say about the risk of the Go-Rilla Project relative to the average risk of the other product lines
In: Finance
You have a credit card on which you owe a balance of $3,000. The card carries an interest rate of 22% (APR), compounded monthly. You decide to cut up the card, and pay it off by paying the minimum payment due each month, which is a constant $60 (HINT: The amount you owe the credit card company today is a loan).
In: Finance
| The interest rate on a 1-year Canadian security is | 12% | ||||
| current exchange rate is C$ = US | 0.8 | ||||
| 1-year forward rate is C$ = US | 0.82 | ||||
| The return (denominated in U.S. $) that a U.S. investor can earn by investing in the Canadian security is | |||||
|
12.00% |
||
|
13.24% |
||
|
14.18% |
||
|
14.80% |
In: Finance
Suppose you enter into a 9-month long forward contract on a non-dividend-paying stock when the stock price is S0 = $125 and the risk-free rate is 2.0% per annum with continuous compounding.
(a) What are the forward price (F0) and the initial value of the forward contract?
(b) Three months later, the price of the stock (S0) is $112, and the risk-free remains 2.0%. What are the forward price (F0) and the value of the forward contract?
(c) Another month later (4 months from today), the risk-free rate increases to 2.25% while the stock price stays $112. What are the forward price and the value now?
(d) Suppose now that another month later (5 months from today) the risk-free rate stays 2.25%, but the stock price goes up to $130. How much could you sell your forward contract for?
In: Finance
Use the market of corporate bonds and government bonds to graphically explain why the credit spread increases when there is a financial crisis.
In: Finance
In: Finance
A portfolio manager wants to exchange one bond in a portfolio for another. The old bond position has a market value of 6.5 million, a price of $81.90 per $100 of par value, and a duration of 4.33. The new bond has a duration of 4.33 and a price of $85.52 per $100 of par value.
What is the total market value of the new bond that the portfolio manager must buy in order to keep the same portfolio duration?
Correct Answer: 6,500,000
In: Finance
Dixon Weed Seeds Inc. is considering expanding. An outlay of $205 million is required for equipment for the expansion, and additional net working capital of $23 million is required to support the expansion. The equipment is expected to have a productive life of 10 years, and will be depreciated over 10 years to $19.04 million. It is expected to be sold at the end of its life for $24.6 million. Revenues minus expenses are expected to be $44.834 million per year for the life of the equipment. The corporation's marginal tax rate is 24% and the cost of capital for this investment is 10.3%. Compute the NPV of Dixon's proposed expansion. (In $millions with 3 decimals.)
In: Finance
|
Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,580,000; the new one will cost, $1,897,000. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $375,000 after five years. |
|
The old computer is being depreciated at a rate of $320,000 per year. It will be completely written off in three years. If we don’t replace it now, we will have to replace it in two years. We can sell it now for $513,000; in two years, it will probably be worth $147,000. The new machine will save us $326,000 per year in operating costs. The tax rate is 21 percent, and the discount rate is 8 percent. |
| a-1. |
Calculate the EAC for the the old computer and the new computer. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
| a-2. |
What is the NPV of the decision to replace the computer now? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
How do you figure out a-2?
In: Finance
In: Finance