; Finance Capital budgeting : calculation of payback period
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Finance Capital budgeting : calculation of payback period

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Capital budgeting involves calculation of NPV, IRR, Payback period : If the required return is greater than the coupon rate, a bond will sell at:

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									              Sub: Finance                                                                     Topic: Capital Budgeting

              Question:
              Capital budgeting involves calculation of NPV, IRR, and Payback period.
         ClassOf1 provides expert guidance to College, Graduate, and High school students on homework and assignment problems in
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              1. If the required return is greater than the coupon rate, a bond will sell at:

              a. Par
              b. A discount
              c. A premium
              d. Book value

              2. XYZ Co. is considering the purchase of a new machine. The machine will cost $250,000 and requires
              installation costs of $25,000. The existing machine can be sold currently for $25,070. It was purchased
              three years ago for $83,000 and depreciated using MACRS. It can be operated for another four years. Its
              market value at that time, if sold, would be $14,000. The new machine has expected life of five years
              and expected to provide operating cash savings of $88,000 a year for 2 years and $50,000 a year for the
              next two years before depreciation and taxes (EBD&T). After four years the new machine can be sold for
              $12,750. To support the increased business resulting from the purchase of new machine, A/R will
              increase by $12,000; inventory will increase by $25,000 and current liabilities by $41,000. The cost of
              capital is 17% and the tax rate is 40%.

              Determine the Initial Investment (II)
              Determine the Payback Period (PP)
              Determine the NPV, IRR and MIRR
              Make a recommendation to accept or reject the new investment.

              3. Recently, Ohio Hospitals filed for bankruptcy. The firm was reorganized as American Hospitals, Inc.,
              and the court permitted a new indenture on an outstanding bond issue to be put into effect. The issue
              has 10 years to maturity and coupon rate of 10 percent 
								
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