Finance Answers

Royal Company is considering the introduction of new equipment which cost $95,000. The equipment has useful life of four years and is in the three years property class for tax purposes. Shipping and installation charges are $5000. Machine has expected salvage value of $16500. No additional networking capital is needed. The new equipment will generate additional net operating cash flows before the depreciation and taxes as follows

Time Year 1 Year 2 Year 3 Year 4
Net Cash Flows 34000 37000 56000 35000

if the machine tax rate is 30%, calculate

1) The initial Cash flow
2) Interim incremental net cash flow
3) terminal year end incremental net cash flows (depreciation percentages 33.33%, 44.45%, 14.81% and 7.41%)

Royal Company is considering the introduction of new equipment which cost $95000. The equipment has useful life of four years and is in the three years property class for tax purpose. Shipping and installation charges are $5000, machine has expected salvage value of $16500. N additional net working capital is needed. The new equipment will generate additional net operating cash flows before depreciation and taxes as follows

Time Year 1
Net Cash Flows 34000

Acme tobacco is currently selling 5000 pounds of pipe tobacco per year. Due to competitive pressures, the average price of a pipe declines from $15 to $12. As a result, the demand for Acme pipe tobacco increases to 6000 pounds per year.

a) What is the cross elasticity of demand for pipes and pipe tobacco?
b) Assuming that the cross elasticity does not change, at what price of pipes would the demand for pipe tobacco be 3,000 pounds per year? Use $15 as the initial price of a pipe.

Book Co. has 1.1 million shares of common equity with par (book) value of $1.35 and retained earnings of $28.5 million, and its shares have a market value of $50.29 per share. It also has debt with a par value of $18.4 million that is trading at 101% of par.

a. What is the market value of its equity?
b. What is the market value of its debt?
c. What weights should it use in a computing its WACC?

ABCcompany is considering a capital investment for which initial outlay is 500,000 and has estimated life of five years with a zero salvage value, ignoring depreciation, the machine produced following cash flows:- in year 1, $70,000, in year 2, 60,000, in year 3, 50,000, in year 4, 60,000, in year 5, 70,000 compute NPV and pay back period, discount rate is 8%, interprete your finding.

2 Cost of Preferred Stock. Micro Spinoffs also has preferred stock outstanding. The stock
pays a dividend of $4 per share, and the stock sells for $40. What is the cost of preferred
stock?
3. Calculating WACC. Suppose Micro Spinoffs’s cost of equity is 12.5 percent. What is its
WACC if equity is 50 percent, preferred stock is 20 percent, and debt is 30 percent of total
capital?

Farrelly enterprises has fixed operating cost of $500,000, variable operating cost per unit of $20 and a selling price of $40. The firm's capital structure consists of $600,000 loan at 10% interest, 10,000 shares of preferred stock paying an annual dividend of $3 per share and $50,000 shares of common stock outstanding. Farrelly has a 34% tax rate. Calculator Farrelly operating breakeven point in units and in dollar sales

A 30-year maturity bond with face value of $1,000 makes annual coupon payments and has a coupon rate of 8%. What is the bond's yield to maturity if the bond is selling for $1,100?

abc company is considering a capital investment for which initial outlay is 500,000 and has estimated life of five years with a zero salvage value, ignoring depreciation, the machine produced following cash flows:- in year 1, $70,000, in year 2, 60,000, in year 3, 50,000, in year 4, 60,000, in year 5, 70,000 compute NPV and pay back period, discount rate is 8%, interprete your finding

A forklift will last for only 3 more years. It costs $5,000 a year to maintain. For $20,000 you can buy a new lift that can last for 10 years and should require maintenance costs of only $2,000 a year.

If the discount rate is 5 percent per year, should you replace the forklift?

What if the discount rate is 12 percent per year? Why does your answer change?