1. Five years ago a chemical plant invested $90,000 in a pumping station on a nearby river to provide the water required for their production process. Straight line depreciation is employed for tax purposes, using a 30-year life and zero salvage value. During the past five years, operating costs have been $8,000 per year, and is projected to remain constant for the remainder of service. A nearby city has offered to purchase the pumping station for $80,000 as it is in the process of developing a city water distribution system. The city is willing to sign a 10-year contract with the plant to provide the plant with its required volume of water for a price of $10,000 per year. Plant officials estimate that the salvage value of the pumping station 10 years hence will be about $35,000. The before-tax MARR is 10% per year. An effective income tax rate of 50% is to be assumed. Calculate the EUAC of the defender on an after-tax basis.
a. $9,356
b. $12,356
c. $10,435
d. $7,980
e. $8,981
2. According to the efficient market hypothesis, which one of the following is not correct:
a) Markets place a premium on the future
b) Today’s stock price is the best predictor of tomorrow’s stock price
c) Stock prices reflect all available information
d) Today’s stock price incorporates the past history of prices
And please explain why.