Chapman Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine for $390,000 is estimated to result in $135,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a pretax salvage value at the end of the project of $198,000. The MACRS rates are .2, .32, .192, .1152, .1152, and .0576 for Years 1 to 6, respectively. Ignore bonus depreciation. The press also requires an initial investment in inventory of $8,000, along with an additional $1,500 in inventory for each succeeding year of the project. The inventory will return to its original level when the project ends. The shop’s tax rate is 21 percent and its discount rate is 16 percent. Should the firm buy and install the machine? Why or why not?

Which one of the following stocks is correctly priced according to CAPM if the risk-free rate of return is 3.4 percent and the market risk premium is 7.4 percent? Stock Beta Expected Return A .87 .096 B 1.09 .102 C 1.62 .146 D .98 .107 E 1.16 .139

The relevant discount rate is 14 percent for a project with cash flows of −$9,200, $4,600, $3,300, and $3,800 for Years 0 to 3, respectively. What is the profitability index?

Ives Corporation has an inventory period of 23.1 days, an accounts payable period of 40.7 days, and an accounts receivable period of 33.5 days. What is the company’s cash cycle?

What is the beta of the following portfolio? Stock Amount Invested Security Beta A $6,000 1.37 B $17,900 .95 C $2,750 1.48

Underground Funeral Services has annual sales of $885,500. The cost of goods sold is equal to 90 percent of sales. The firm has an average accounts receivable balance of $87,600 and an average accounts payable balance of $72,900. How many days, on average, does it take the firm to pay its suppliers?

You purchased GARP stock one year ago at a price of $63.03 per share. Today, you sold your stock and earned a total return of 18.15 percent. The stock paid dividends of$2.28 per share over the year. What was the capital gains yield on your investment?

Road Kill Restaurant had the following account balances. The change in these accounts represents a net ____ of cash for the year in the amount of _____. Beginning Balance Ending Balance Accounts receivable $ 28,275 $ 26,000 Accounts payable 40,925 42,250 Inventory 20,425 24,250

You are evaluating a project that requires $324,000 in external financing. The flotation cost of equity is 8.4 percent and the flotation cost of debt is 5.1 percent. What is the initial cost of the project including the flotation costs if you maintain a debt-equity ratio of .35?

What is the variance of the returns on a portfolio that is invested 40 percent in Stock S and 60 percent in Stock T? State of Economy Probability of State of Economy Rate of Return if State Occurs Stock S Stock T Boom .06 .22 .18 Normal .92 .15 .14 Bust .02 −.26 .09