The rate of return (ROR) for Tulsa Drilling Company, if the convertible bond is purchased one year ago and will be sold today. Introduction: Rate of Return (ROR): It is the rate that shows the net profit or loss, an investor earns or loses on an investment over a particular time-period. It helps in measuring growth of an investment that took place in two periods.

Question

Replacement Analysis The Everly Equipment Company's flange-lipping machine was purchased 5 years ago for $75,000. It had an expected life of 10 years when it was bought and its remaining depreciation is $7,500 per year for each year of its remaining life. As older flange-lippers are robust and useful machines, this one can be sold for $20,000 at the end of its useful life. A new high-efficiency digital-controlled flange-lipper can be purchased for $130,000, including installation costs. During its 5-year life, it will reduce cash operating expenses by $45,000 per year, although it will not affect sales. At the end of its useful life, the high-efficiency machine is estimated to be worthless. MACRS depreciation will be used, and the machine will be depreciated over its 3-year class life rather than its 5-year economic life, so the applicable depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%. The old machine can be sold today for $50,000. The firm's tax rate is 25%, and the…

Answer 1

Question

Chapter 19, Problem 22P

a.

Summary Introduction

To calculate: The rate of return (ROR) for Tulsa Drilling Company, if the convertible bond is purchased one year ago and will be sold today.

Introduction:

Rate of Return (ROR):

It is the rate that shows the net profit or loss, an investor earns or loses on an investment over a particular time-period. It helps in measuring growth of an investment that took place in two periods.

b.

Summary Introduction

To calculate: The pure bond value when the nonconvertible bondsâ€™ yield gets decreased to 8% at the time of sale and also explain its significant effect on valuation of Tulsa Drilling Company.

Introduction:

Bond:

It is a long term loan borrowed by the corporations, organizations, and the government for the

purpose of raising capital. It is issued at a fixed interest depending upon the reputation of the

corporations and also termed as fixed-income security.

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