Fin 571 Week 4 Individual Homework

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
Owners Equity $25,000,000
Dividends $500,000
Shares Outstanding 1,000,000
Market Price Per Share is $8.

6- Assuming the above information found in problems 3-5 above, and the corporate capital structure given below, what is the weighted cost of capital?
Financing Method
Debt                                         $1,000,000
Preferred...