...FIN515 Week 5 Project Equipment’s Basic Cost 70,000 To Modify it to Firm 15,000 The Spectrometer (MARC 3 year Class Would be sold after 3yrs 30,000 Equipment’s requires increase in net working capital 4,000 The Spectrometer no effect on Revenue But expected to save 25,000 per year before-tax operating cost Federal plus state tax rate 40% A. What is the net cost of the spectrometer- Price – 70,000+ 15,000 + 4,000 Net Cost – (89,000) B. What are the net operating cash flow in Year 1,2, and 3 Depreciation Expense = Cost multiplied by MACRs Allowance MACRs 33% yr 1 – 45% yr 2 – 15% yr 3 Year 1 Year 2 Year 3 85,000 x.33 85,000 x .45 85,000 x .15 Depreciation Expense 28,050 38,250 12,750 (Dep. Exp x Tax rate) Depreciation after Tax 11,220 15,300 5,100 After- Tax Saving – 25,000 x (1-.40)= 15,000 per year After Tax 15,000 15,000 15,000 Net Operating Cash Flow 26,220 30,300 20,100 C. What are the additional (non-operating ) cash flow in year 3 Net Salvage Value =Salvage Value - Tax Rate + Increase in working Capital Book Value = Dep. cost x Acc. Dep. Rate Book Value = 85,000 x 7% Book Value = 5,950 Salvage Value = 30,000 Book Value = 5950 Total 24,050 Tax Rate 40% Tax on SV 9,620 Salvage Value - 30,000 Tax on SV 9620 SV after – Tax 20,380 Increase in WC 4,000 ...
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...FIN515 Homework Week # 3 Brian Jack D01609334 Managerial Finance briancjack@hotmail.com 03-23-2014 Professor: Paul Tovbin Chapter 5 29. Suppose the term structure of risk-free interest rates is as shown below: Top of Form |Term |1 year | |Treasury |3.1 | |AAA corporate |3.2 | |BBB corporate |4.2 | |B corporate |4.9 | • a. What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating? • b. What is the credit spread on AAA-rated corporate bonds? • c. What is the credit spread on B-rated corporate bonds? • d. How does the credit spread change with the bond rating? Why? 30. HMK Enterprises would like to raise $10 million to invest in capital expenditures. The company plans to issue five-year bonds with a face value of $1000 and a coupon rate of 6.5% (annual payments). The following table summarizes the yield to maturity for five-year (annual-pay) coupon corporate...
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...========================================================== FIN515: Week-1 Assignment ========================================================== MINI-CASE (p. 45): Consulting Michelle DellaTorre To explain the U.S. Financial System to Ms. DellaTorre, I would provide her with the following answers to the questions given to me by my boss: 1. Why is corporate finance important to all managers? Corporate finance is a basic component of how a business is run. All managers should keep this in mind to direct funds to the optimal division or product in a company. In addition, managers should understand how their company is financed and whether it has a risk of bankruptcy. Conversely, managers should understand if the equity in the business is undervalued and has the potential to grow. 2. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form. Sole Proprietorship: A type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business. The owner receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts. Every asset of the business is owned by the proprietor and all debts of the business are the proprietor's. This means that the owner has no less liability than if they were acting as an individual instead of as a business. Some advantages...
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