Calculate the fair price per share
Question 1 out of 3
Question 2. (15 points) Your company is evaluating new equipment that will cost $2,000,000. The equipment is in the MACRS 3-year class and will be sold after 3 years for $150,000. Use of the equipment will increase net working capital by 200,000. The equipment will save $850,000 in operating costs each year for 3 years. The company’s tax rate is 25 percent and its cost of capital is 12%. |
|||||||||||||||||||||||||||||||||
Part a. Calculate the cash flow in Year 0. |
|||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||
Part b. Calculate the incremental operational cash flows . |
|||||||||||||||||||||||||||||||||
Reference: |
MACRS Depreciation Percentages for three-year class life assets: |
3 |
|||||||||||||||||||||||||||||||
0.3333 |
0.4445 |
||||||||||||||||||||||||||||||||
0.1481 |
0.0741 |
||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
c. Calculate the non-operating terminal year cash flow. |
|
|
|||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||
Part d. Calculate the project’s payback period. |
|
||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||
Part e. Calculate the project’s NPV. |
|||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||
Part f. Calculate the project’s IRR. |
|||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
Part g. Calculate the project’s MIRR. |
|||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||
Part h. Investment Decision: Should the project be accepted or rejected? Why or why not? |
Question 2 out of 3
Question 5. (15 points Marcus Company, is a successful start up business, but needs additional funding of $500,000 to fund continued growth. Currently the company is worth $1,500,000. An angel investor is willing to invest the full $1,500,000. The owner of the company currently owns all 100,000 shares in her business
d. What are 3 reasons that explain why the owner of the company wants to raise new equity capital? e. What are 3 reasons that explain why the owner might consider raising new capital through debt rather than equity? |
|
|
|
Question 3 out of 3
Question 6. (15 points) Harris Corporation is evaluating whether to lease or purchase equipment. Its tax rate is 25 percent. The purchase price is $2.4 million, required modifications to the equipment will cost $100,000. The company would depreciate the equipment over 4 years, using straight-line depreciation. A 4-year lease calls for a payment of $750,000 at the beginning of each year. If the equipment is purchased, the company will borrow from its bank at an interest rate of 10 percent.
a. Calculate the cost of purchasing the equipment.
b. Calculate the cost of leasing the equipment.
c. Calculate the net advantage to leasing. Should the company purchase or lease the equipment?
***ALL ANSWERS MUST BE SUBMITTED IN EXCEL
Collepals.com Plagiarism Free Papers
Are you looking for custom essay writing service or even dissertation writing services? Just request for our write my paper service, and we'll match you with the best essay writer in your subject! With an exceptional team of professional academic experts in a wide range of subjects, we can guarantee you an unrivaled quality of custom-written papers.
Get ZERO PLAGIARISM, HUMAN WRITTEN ESSAYS
Why Hire Collepals.com writers to do your paper?
Quality- We are experienced and have access to ample research materials.
We write plagiarism Free Content
Confidential- We never share or sell your personal information to third parties.
Support-Chat with us today! We are always waiting to answer all your questions.