Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1. You decide to purchase a Macarena GT for $150,000 by putting $50,000 down and financing the remainder from the bank. You can borrow the

1. You decide to purchase a Macarena GT for $150,000 by putting $50,000 down and financing the remainder from the bank. You can borrow the money from the dealer and make 5 years of quarterly payments or make five years of monthly payments. The bank charges an APR of 22.25% for quarterly payments and 22% for monthly payments. In looking at the rates, you believe you should choose monthly b/c the APR is lower. Would that be a good choice? Support your answer mathematically. What is the periodic payment of both loans? What if the payments were made as an annuity due?

2. Your firm wants to take advantage of the 100% bonus depreciation offered in the new tax code. You are evaluating a decision to build a new factory based on a strong economy and therefore expected future growth. The expansion will cost $25 million, with expected sales of $6 million per year. Variable costs of running the factory amount to 50% of sales and fixed costs equal $1.5 million. Initial NWC needs are $1.25 million. At the end of 5 years, you expect to sell the factory for $7 million. The tax rate is 22% and the cost of capital is 9%.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Money Banking And Financial Markets

Authors: Stephen G. Cecchetti

1st Edition

0072452692, 9780072452693

More Books

Students also viewed these Finance questions

Question

12. What are their values? (ethical stance in society)

Answered: 1 week ago