A firm needs to replace most of its machinery in 7 years at a cost of $450,000. The company wishes to create a sinking fund to have this money available in 7 years. How much should the monthly deposits be if the fund earns 5% compounded monthly?
In: Finance
Gateway communication is considering a project with an initial fix asset cost of 1.070000 that will be depreciated straight line to zero book value over 10 years over the life of the project. At the end of the project the equipment will be sold for an estimated 228000. The project will not change sales but reduced operating costs by 381500 per year. The tax rate is 34 % and required return is 10.3%. The project will be required NWC 46000 which will be recouped when project end. What is the project NPV?
In: Finance
The common stock of Low Cost Foods is expected to earn 12 percent in a booming economy, earn 8 percent in a normal economy, and lose 6 percent in a recession. The probability of a boom is 15 percent, the probability of a normal economy is 80 percent, and the chance of a recession is 5 percent. What is the expected rate of return on this stock?
In: Finance
The net present value of an investment is best defined as the
1 current cost if the investment is made today.
2 net value received at the end of the investment period.
3 present value of the investment's future cash flows minus the investment's cost.
4 net decrease in value caused by waiting to receive the cash benefit from the investment.
5 value received at the end of the investment period minus the investment's cost.
In: Finance
Suppose you are building a refrigerated extension to a storage facility. The cost of labor and materials to build it are 58,000 and 160,000, respectively. The pre-tax discount rate is 12%, the tax rate is 20%, and the extension would add $220,000 to the value of the facility if sold in 10 years. Calculate the present value of the initial cost.
In: Finance
In: Finance
You plan on purchasing a new car in 9 months. The cost of the car in 9 months will be $25,127. How much would you have to invest today to exactly pay for the new car if you investments earn 4.86% APR (compounded monthly)?
In: Finance
Which of the following statement is NOT correct?
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Price Impact is a trading cost for investors when trading common stocks |
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None of the above |
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Fund turnover can hurt mutual fund investors in terms of commission and tax liability |
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Open-end mutual funds offer investors a guaranteed rate of return |
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Fund turnover can hurt mutual fund investors in terms of commission and tax liability |
In: Finance
A company is evaluating the purchase of Machine A. The new machine would cost $120,000 and would be depreciated for tax purposes using the straight-line method over an estimated ten-year life to its expected salvage value of $20,000. The new machine would require an addition of $30,000 to working capital. In each year of Machine A’s life, the company would reduce its pre-tax costs by $40,000. The company has a 12% cost of capital and is in the 35% marginal tax bracket. (using Excel)
a. Identify the incremental cash flows from investing in Machine A.
b. Calculate the investment’s net present value (NPV).
c. Calculate the investment’s internal rate of return (IRR).
d. Should the company purchase Machine A? Why or why not?
(Organizing cash flows, NPV, IRR) This problem follows Problem 13. It is now five years later. The company did buy Machine A, but just this week Machine β came on the market; Machine β could be purchased to replace Machine A. If acquired, Machine β would cost $80,000 and would be depreciated for tax purposes using the straight-line method over an estimated five-year life to its expected salvage value of $20,000. Machine β would also require $30,000 of working capital but would save an additional $20,000 per year in pre-tax operating costs. Machine A’s salvage value remains $20,000, but it could be sold today for $40,000.(USING EXCEL)
a. Identify the incremental cash flows from converting to Machine B.
b. Calculate this investment’s net present value (NPV).
c. Calculate this investment’s internal rate of return (IRR).
d. Should the company convert to Machine B? Why or why not?
In: Finance
7. Which of the following is not a type of responsibility center?
A. concentrated cost center B. Investment center C. profit center D. cost center
8. A responsibility center in which managers are held accountable for both revenues and expenses is called a _______
A. discretionary cost center B. revenue center C. cost center D. profit center
9. The amount of income a given division is expected to earn in excess of a firm's minimum return goal is called:
A. return on investment B. residual income C. allocated costs D. transfer pricing
10. The measure of the percentage of income generated by profits that were invested in capital assets is called:
A. return on investment B. residual income C. allocated costs D. transfer pricing
11. Costs that a company or manager can influence are called:
A. discretionary costs B. fixed costs C. variable costs D. controllable costs
12. A transfer pricing arrangement that uses the price that would be charged to an external customer is a:
A. market-based approach B. negotiated approach C. cost approach D. decentralized approach
In: Accounting