Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Question one: A machine costs $100,000 and generates $25,000 of pre-tax operating income per year. The tax rate is 40%. The machine is in a

Question one:

A machine costs $100,000 and generates $25,000 of pre-tax operating income per year. The tax rate is 40%. The machine is in a CCA class with a 20% rate. The cost of capital is 12%. The machine is expected to last 10 years and will have no salvage value. Other assets will remain in the asset class. What is the NPV of the machine?

question two:

ABC Inc. has a debt/equity ratio of 1.2. The firm has a cost of equity of 12% and a cost of debt of 8%. What will be the cost of equity if the target debt/equity ratio increases to 2.0 and the cost of debt does not change? Ignore taxes

question three:

A candy manufacturer wishes to control risk by hedging its exposure to the price of sugar in the futures market.

a) What position should it take in the futures market?

b) Assume it takes this position in the futures market when the futures price is 72 cents per ton. How much will the manufacturer gain or lose if the futures price moves to 75 cents per ton?

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

Foundations Of Personal Finance

Authors: Sally R. Campbell, Robert L. Dansby

9th Edition

1619603578, 9781619603578

More Books

Students also viewed these Finance questions

Question

List the five main drivers of responsible business management.

Answered: 1 week ago