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Valentin [98]
4 years ago
10

EDP is trying to decide between two different conveyor belt systems. System A costs $438,000, has a six-year life, and requires

$83,000 in pretax annual operating costs. System B costs $369,000, has a five-year life, and requires $92,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have a zero salvage value. Whichever system is chosen, it will not be replaced when it wears out. The tax rate is 23 percent and the discount rate is 14.2 percent. Which system should the firm choose and why?
Business
1 answer:
Liula [17]4 years ago
6 0

The firm should choose system A because it has a six-year life and a lesser annual operating cost.                                                                  

<u>Explanation</u>:

  • Even though system A costs $438,000 the quality of the system is good. The quality of system A has a six-year life. So the quality is pretty good. It has an $83,000 tax annual operating cost.
  • System B costs $369,000 . Compared to the cost of system A, system B is low. But it has a $92,000 tax annual operating cost. This tax is higher than A.
  • System A has a higher life compared to system B. So the firm should choose system A.                

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Harry Trading Company must choose its optimal capital structure. Currently, the firm has a 20 percent debt ratio and the firm ex
AnnyKZ [126]

Answer:

They should not make the change because the price of the stocks will decrease.

Explanation:

the current price of the stocks using the perpetuity formula = dividend / required rate of return

current price with current capital structure = $5.64 / 0.123 = $45.85

if the company changes its capital structure by increasing debt, the price of the stocks will be

$5.92 / 0.136 = $43.53

since the price of the stocks would actually decrease if the capital structure changes, the change should not be made. The stockholders' wealth is measured by the price of the stocks, and if the price of the stocks decreases, then the stockholders' wealth also decreases.

4 0
3 years ago
To help you reach a $5,000 goal in five years from now, your father offers to give you $500 now. You plan to get a part-time job
elena55 [62]

Answer:

He needs to deposit each year $747.38

Explanation:

Giving the following information:

To help you reach a $5,000 goal in five years from now, your father offers to give you $500 now. You plan to get a part-time job and make five additional deposits, one at the end of each year for 5 years. Your first deposit will be made at the end of the first year. The money is deposited in a bank that pays 7% interest.

First, we need to calculate the final value of the first $500 that the father gave him:

FV= PV*(1+i)^n

FV= 500*(1.07)^5=

FV= 701.28

Now, we have to calculate the annual deposit required:

Difference= 5,000 - 701.28= 4,298.72

We need to use the following formula:

FV= {A*[(1+i)^n-1]}/i

A= annual deposit

Isolating A:

A= (FV*i)/{[(1+i)^n]-1}

A= (4,298.72*0.07)/[(1.07^5)-1]

A= $747.38

7 0
3 years ago
NU YU announced today that it will begin paying annual dividends. The first dividend will be paid next year in the amount of $.3
a_sh-v [17]

Answer:

P0 = $9.0767092  rounded off to $9.08

Explanation:

The dividend discount model (DDM) can be used to calculate the price of the stock today. DDM calculates the price of a stock based on the present value of the expected future dividends from the stock. The formula for price today under DDM is,

P0 = D1 / (1+r)  +  D2 / (1+r)^2  +  ...  +  Dn / (1+r)^n  +  [(Dn * (1+g) / (r - g)) / (1+r)^n]

Where,

  • D1, D2, ... , Dn is the dividend expected in Year 1,2 and so on
  • g is the constant growth rate in dividends
  • r is the discount rate or required rate of return

P0 = 0.31 / (1+0.1)  +  0.36 * / (1+0.1)^2  + 0.51 / (1+0.1)^3  +  0.81 / (1+0.1)^4  +

[(0.81 * (1+0.025) / (0.1 - 0.025)) / (1+0.1)^4]

P0 = $9.0767092  rounded off to $9.08

7 0
3 years ago
According to the article, which economic event sparked the decade-long economic crisis? the Nixon administration’s wage and pric
Free_Kalibri [48]
<span>a sudden increase in oil prices in 1973 </span>
6 0
3 years ago
Read 2 more answers
Compared to consumers, producers will lose the lesser amount of surplus from a tax if:
sveticcg [70]

Answer: Supply is more elastic than demand

Explanation:

Elastic demand means if there is an increase in price then the quantity demanded will decrease. Percentage change in price results in a percentage change in quantity.

If supply is more elastic then that would mean the producers are getting affected. Because a change in price would affect the quantity demanded and hence would affect the supply of the product. Taxes would mean the producers would have to increase the price of the product hence, affected producer surplus and decreasing the demand of the product.  

8 0
3 years ago
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