The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape guitar sides. The steamer has 6 years of remaining life. If kept, the steamer will have depreciation expenses of $650 for 5 years and $325 for the sixth year. Its current book value is $3,575, and it can be sold on an Internet auction site for $4,150 at this time. If the old steamer is not replaced, it can be sold for $800 at the end of its useful life.

Gilbert is considering purchasing the Side Steamer 3000, a higher-end steamer, which costs $12,000, and has an estimated useful life of 6 years with an estimated salvage value of $1,200. This steamer falls into the MACRS 5-years class, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The new steamer is faster and would allow for an output expansion, so sales would rise by $2,000 per year; even so, the new machine's much greater efficiency would reduce operating expenses by $1,500 per year. To support the greater sales, the new machine would require that inventories increase by $2,900, but accounts payable would simultaneously increase by $700. Gilbert's marginal federal-plus-state tax rate is 40%, and its WACC is 14%.

Should it replace the old steamer?

The old steamer _________shouldshould not be replaced.

What is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest dollar.

$  

Should it replace the old steamer?

The old steamer be replaced.

What is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest dollar.

$  

First determine the net cash flow at t = 0:

^aThe market value is $4,150 – $3,575 = $575 above the book value. Thus, there is a $575 recapture of depreciation, and Gilbert would have to pay 0.40($575) = $230 in taxes.
^b The change in net working capital is a $2,900 increase in current assets minus a $700 increase in current liabilities, which totals to $2,200.

Now, examine the annual cash inflows:

After-tax revenue increase:

$3,500(1 – T) = $3,500(0.60) = $2,100.

Depreciation:

^a Depreciable basis = $12,000. Depreciation expense in each year equals depreciable basis times the MACRS percentage allowances of 0.2000, 0.3200, 0.1920, 0.1152, 0.1152, and 0.0576 in Years 1-6, respectively.
^b Depreciation tax savings = T(ΔDepreciation) = 0.4(ΔDepreciation).

Now recognize that at the end of Year 6 Gilbert would recover its net working capital investment of $2,200, and it would also receive $1,200 from the sale of the replacement machine. However, since the machine would be fully depreciated, the firm must pay 0.40($1,200) = $480 in taxes on the sale. Also, by undertaking the replacement now, the firm forgoes the right to sell the old machine for $800 in Year 6; thus, this $800 in Year 6 must be considered an opportunity cost in that year. Taxes of $800(0.4) = $320 would be due because the old machine would be fully depreciated in Year 6, so the opportunity cost of the old machine would be $800 – $320 = $480.

Finally, place all the cash flows on a time line:

Note: While the calculations above show values rounded to the nearest whole number, unrounded values should be used in all calculations above.

The net present value of this incremental cash flow stream, when discounted at 14%, is $1,433. Thus, the replacement should be made.

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Scientific NotationPeriodic TableTables

You must evaluate a proposal to buy a new milling machine. The base price is $185,000, and shipping and installation costs would add another $7,000. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $83,250. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The machine would require a $4,000 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $51,000 per year. The marginal tax rate is 35%, and the WACC is 12%. Also, the firm spent $5,000 last year investigating the feasibility of using the machine.

a)How should the $5,000 spent last year be handled? (Choose from options 1-5)

1Last year's expenditure is considered as a sunk cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis.

2The cost of research is an incremental cash flow and should be included in the analysis.

3Only the tax effect of the research expenses should be included in the analysis.

4Last year's expenditure should be treated as a terminal cash flow and dealt with at the end of the project's life. Hence, it should not be included in the initial investment outlay.

5Last year's expenditure is considered as an opportunity cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis.

b)What is the initial investment outlay for the machine for capital budgeting purposes, that is, what is the Year 0 project cash flow? Round your answer to the nearest cent.

c)What are the project's annual cash flows during Years 1, 2, and 3? Round your answer to the nearest cent. Do not round your intermediate calculations.

Year 1 $

Year 2 $

Year 3 $

d)Should the machine be purchased?

The spot price of corn is $17.2 per bushel. Storage costs are $0.32 per bushel per year. Payment of storage costs occurs in advance for the next three months. Assuming that interest rates are 7% per annum, calculate the forward price of corn for delivery in 12 months.

Appreciate if you show me the calculation steps. Thank you!!

1. Seth Bullock, the owner of Bullock Gold Mining, is evaluating a new gold mine in South Dakota. Dan Dority, the company's geologist, has just finished his analysis of the mine site. He has estimated that the mine would be productive for eight years, after which the gold would be completely mined. Dan has taken an estimate of the gold deposits to Alma Garrett, the company's financial officer. Alma has been asked by Seth to perform an analysis of the new mine and present her recommendation on whether the company should open the new mine.

Alma has used the estimates provided by Dan to determine the revenues that could be expected from the mine. She has also projected the expense of opening the mine and the annual operating expenses. If the company opens the mine, it will cost $635 million today, and it will have a cash outflow of $45 million nine years from today in costs associated with closing the mine and reclaiming the area surrounding it. The expected cash flows each year from the mine are shown in the table. Bullock Mining has a 12 percent required return on all of its gold mines.

Questions:

1. Construct a spreadsheet to calculate the payback period, internal rate of return, modified internal rate of return, and the net present value of the proposed mine.

2. Based on your analysis, should the company open the mine?

3. Bonus question: Most spreadsheets does not have a built-in formula to calculate the payback period. Write a VBA script that calculates the payback period for a project.

Change the cash-flows as follows

Investment: 600,000,000

B. Answer the same question from problem 1

The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $6,500 and has an expected life of 3 years. Annual project cash flows begin 1 year after the initial investment and are subject to the following probability distributions:

BPC has decided to evaluate the riskier project at 11% and the less-risky project at 10%.

1. What is each project's expected annual cash flow? Round your answers to two decimal places.

   Project A: $  

   Project B: $  

   Project B's standard deviation (σ_B) is $5,822.37 and its coefficient of variation (CV_B) is 0.78. What are the values of (σ_A) and (CV_A)? Round your answers to two decimal places.

   σ_A = $  

   CV_A =

2. Based on the risk-adjusted NPVs, which project should BPC choose?

   _________Project AProject B

3. If you knew that Project B's cash flows were negatively correlated with the firm's other cash flow, but Project A's cash flows were positively correlated, how might this affect the decision?

   _________This would make Project B more appealing.This would make Project B less appealing.

   If Project B's cash flows were negatively correlated with gross domestic product (GDP), while A's cash flows were positively correlated, would that influence your risk assessment?

   _________This would make Project B more appealing.This would make Project B less appealing.

1. What is each project's expected annual cash flow? Round your answers to two decimal places.

   Project A. $  

   Project B. $  

   Project B's standard deviation (σ_B) is $5,822.37 and its coefficient of variation (CV_B) is 0.78. What are the values of (σ_A) and (CV_A)? Round your answers to two decimal places.

   σ_A = $  

   CV_A =

2. Based on the risk-adjusted NPVs, which project should BPC choose?

3. If you knew that Project B's cash flows were negatively correlated with the firm's other cash flow, but Project A's cash flows were positively correlated, how might this affect the decision?

   If Project B's cash flows were negatively correlated with gross domestic product (GDP), while A's cash flows were positively correlated, would that influence your risk assessment?

Problem 7-17 Abandonment Value

We are examining a new project. We expect to sell 5,600 units per year at $70 net cash flow apiece for the next 10 years. In other words, the annual operating cash flow is projected to be $70 × 5,600 = $392,000. The relevant discount rate is 18 percent and the initial investment required is $1,550,000. a. What is the base-case NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. After the first year, the project can be dismantled and sold for $1,270,000. If expected sales are revised based on the first year’s performance, below what level of expected sales would it make sense to abandon the project? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

A Japanese company has a bond outstanding that sells for 106 percent of its ¥100,000 par value. The bond has a coupon rate of 5.4 percent paid annually and matures in 11 years.

What is the yield to maturity of this bond?

Use the bond term's below to answer the question
Maturity 7 years
Coupon Rate 4%
Face value $1,000
Annual Coupons
YTM 3% (interest rate)

Assuming the YTM remains constant throughout the bond's life, what is the bond's price in year 4?

A. $1,028.29

B. $1,083.55

C. $1,008.12

D. $1,062.30

The weak form of the efficient-market hypothesis asserts that

A. stock prices do not rapidly adjust to new information contained in past prices or past data.
B. future changes in stock prices cannot be predicted from past prices.
C. technicians cannot expect to outperform the market.
D. stock prices do not rapidly adjust to new information contained in past prices or past data, and
future changes in stock prices cannot be predicted from past prices.
E. future changes in stock prices cannot be predicted from past prices, and technicians cannot
expect to outperform the market.

Select the correct option and explain.

In an efficient market,
A. security prices react quickly to new information.
B. security prices are seldom far above or below their justified levels.
C. security analysis will not enable investors to realize superior returns consistently.
D. one cannot make money.
E. security prices react quickly to new information, security prices are seldom far above or below
their justified levels, and security analysis will not enable investors to realize superior returns
consistently.

Select the correct option and explain.

(Cost of commercial paper​) Tri-State Enterprises plans to issue commercial paper for the first time in the​ firm's 35-year history. The firm plans to issue $400,000 in 270​-day maturity notes. The paper will carry a 10.25 percent rate with discounted interest and will cost​ Tri-State $11,000 ​(paid in​ advance) to issue. Note​: Assume a​ 30-day month and​ 360-day year.

a. What is the effective cost of credit to​ Tri-State?

b. What other factors should the company consider in analyzing whether to issue the commercial​ paper?