FIN
571 Week 4 Individual Homework
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Week 4 Individual Homework Submit
Through Gradebook In Excel
1- New Project Analysis El Gato’s
Motors is considering the purchase of a new production machine for
$1,000,000. Although the purchase of this machine will not produce any
increase in sales revenues it will result in a before tax reduction of labor
costs of $400,000 per year. To operate this machine properly, workers
would have to go through a brief training session that would cost
$100,000. In addition it would cost $50,000 to install this machine
properly. Also, because this machine is extremely efficient, its purchase
would necessitate an increase in inventory of $150,000. This machine has
an expected life of 10 years after which it will have no salvage value.
Assume simplified straight line depreciation and that this machine is being
depreciated down to zero, a 34 percent marginal tax rate and a required rate of
return of 12 percent. Determine NPV, CPI, IRR, MIRR and Discounted
Payback.
2- Determine the cost of common
stock for the following:
Net
Income $2,000,000
Equity
$8,000,000
Dividends
$200,000
Mkt
Price $20 per share
Number of Shares Outstanding is
1,000,000
3- Determine the cost of preferred
given the following
Preferred Stock Price Per Share is
$50
Preferred Dividend is $5.50
4- Find the cost of debt for the
following bond instrument:
Interest Rate is 12%
Tax Rate is 40%
5- Find the cost of Common Stock
given the following:
Net income $5,000,000
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