The profit on the assets and the interest rate at which the firm break even. Introduction: The current worth of the future sum of money is termed as present value . The maximum rate of interest that a firm can make payments from the available cash flows and still have enough cash flow to make the required payments is the break-even interest .

Question

Want to see the full answer?

Answer 1

Question

Chapter 4, Problem 42QP

Summary Introduction

To calculate: The profit on the assets and the interest rate at which the firm break even.

Introduction:

The current worth of the future sum of money is termed as present value. The maximum rate of interest that a firm can make payments from the available cash flows and still have enough cash flow to make the required payments is the break-even interest.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

FULL QUESTIONS: Ilana Industries Inc. needs a new lathe. It can buy a new high-speed lathe for $1 million. The lathe will cost $35,000 per year to run, but it will save the firm $125,000 in labor costs and will be useful for 10 years. Suppose that for tax purposes, the lathe is entitled to 100% bonus depreciation. At the end of the 10 years, the lathe can be sold for $100,000. The discount rate is 8%, and the corporate tax rate is 21%. What is the NPV of buying the new lathe? (A negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to 2 decimal places.)

(Present value of a complex stream) Don Draper has signed a contract that will pay him $40,000 at the end of each year for the next 8 years, plus an additional $120,000 at the end of year 8. If 8 percent is the appropriate discount rate, what is the present value of this contract? a. What is the present value of $40,000 at the end of each year for the next 8 years if the discount rate is 8 percent? $nothing (Round to the nearest cent.)

Salvage value: You are involved with a project that is expected to last 50 years and have a salvage value of $10 million. A consultant has advised your company that an expenditure of only $100,000 at the end of every 5 years will double the salvage value. Your company generally uses a MARR of 15%—do you buy the consultant’s recommendation? 2. Bonds: A bond has an initial purchase price of $1,000 and an interest rate of 6% paid at the end of each year for 30 years. At the end of year 30, the bond is redeemed and the owner is repaid the initial payment of $1,000. a) What is the value of the bond at the beginning of year 6 to someone with a MARR of 7%? At the beginning of year 29? b) What is the value of the bond at the beginning of year 6 to someone with a MARR of 5%? At the beginning of year 29?