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years to a salvage value of $38,000. Kinky anticipates that the machine actually can be sold in 5 years for $49,000. The machine will save $38,000 a year in labor costs but will require an increase in working capital, mainly paper supplies, of $19,000. The firm’s marginal tax rate is 35%, and the discount rate is 7%. (Assume the net working capital will be recovered at the end of Year 5.)
| Calculate the NPV. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) |
| NPV | $ |
| Should Kinky buy the machine? |
| YesNo |
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introduce a new chip, and it forecasts annual sales of 15 million of these improved chips at a price of $28 each. However, demand for the old chip will decrease, and sales of the old chip are expected to fall to 8 million per year. The old chip costs $7 each to manufacture, and the new ones will cost $10 each. What is the proper cash flow to use to evaluate the present value of the introduction of the new chip? (Enter your answer in millions.)
| Cash flow | $ | million |
Question
$2. The T-bill rate is 3%, and the market risk premium is 6%.
| a. | Suppose investors believe the stock will sell for $60 at year-end. Is the stock a good or bad buy? What will investors do? |
| The stock is a (Click to select)goodbad buy and the investors (Click to select)will investwill not invest. |
| b. | At what price will the stock reach an “equilibrium” at which it is perceived as fairly priced today? (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
| Stock price | $ |
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