Steel PIc is selling an existing asset for $25,000. The asset was purchased three years ago at a cost of $100,000 and was depreciated based on the straight line method over a five-year life, which of the following is the tax benefit of this transaction, given a tax rate of 40%? a. $5,000 b. $7,000 c. $4,000 d. $6,000 An engineering company has a proposal to replace its existing machine with a new machine. The new machine costs $55,000 and has installation costs of $5,000. The machine will be depreciated using the straight-line method over five years. The new machine is expected to result in an incremental cost saving of $20.000. The firm has a 40% tax rate. The annual incremental after-tax cash flow from operations for year 1 O a. $17,100 O b. $15,500 O c. $16,800 O d. $14,700   A security analyst forecasts an expected return of 15% over the next year for Fenway Ltd's ordinary shares which have a beta of 1.5. If the risk-free rate is 4% and the market risk premium is 8%, which of the following is TRUE within a CAPM framework? O a. The share is undervalued since the expected return exceeds the market risk premium. O b. The share is fairly priced. O c. The share is undervalued because the CAPM predicts a return of 16%. O d. The share is overvalued because the CAPM predicts a return of 16%.

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter10: Capital Budgeting: Decision Criteria And Real Option
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Steel PIc is selling an existing asset for $25,000. The asset was purchased three years ago at a cost of $100,000 and was depreciated based on the straight line method over a five-year life, which of the following is the tax benefit of this transaction, given a tax rate of 40%?

a. $5,000

b. $7,000

c. $4,000

d. $6,000

An engineering company has a proposal to replace its existing machine with a new machine. The new machine costs $55,000 and has installation costs of $5,000. The machine will be depreciated using the straight-line method over five years. The new machine is expected to result in an incremental cost saving of $20.000. The firm has a 40% tax rate. The annual incremental after-tax cash flow from operations for year 1

O a. $17,100
O b. $15,500
O c. $16,800
O d. $14,700

 

A security analyst forecasts an expected return of 15% over the next year for Fenway Ltd's ordinary shares which have a beta of 1.5. If the risk-free rate is 4% and the market risk premium is 8%, which of the following is TRUE within a CAPM framework?


O a. The share is undervalued since the expected return exceeds the market risk premium.
O b. The share is fairly priced.
O c. The share is undervalued because the CAPM predicts a return of 16%.
O d. The share is overvalued because the CAPM predicts a return of 16%.

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