CFIN -STUDENT EDITION-ACCESS >CUSTOM<
6th Edition
ISBN: 9780357752951
Author: BESLEY
Publisher: CENGAGE C
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Chapter 3, Problem 18PROB
Summary Introduction
BM needs $360 million to support growth. To raise the needed funds, the flotation cost is 4% of the total issue value and other expenses are $288,000. The market price of each share is $60. Calculate the number of outstanding shares.
Equity financing is the process of raising equity capital by issuing shares to investors due to short-term need or long-term goal or for the future growth of the firm.
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Replacement Analysis
The Everly Equipment Company's flange-lipping machine was purchased 5 years ago for $75,000. It had an expected life of 10 years when it was bought and its remaining depreciation is $7,500 per year for each year of its remaining life. As older flange-lippers are robust and useful machines, this one can be sold for $20,000 at the end of its useful life.
A new high-efficiency digital-controlled flange-lipper can be purchased for $130,000, including installation costs. During its 5-year life, it will reduce cash operating expenses by $45,000 per year, although it will not affect sales. At the end of its useful life, the high-efficiency machine is estimated to be worthless. MACRS depreciation will be used, and the machine will be depreciated over its 3-year class life rather than its 5-year economic life, so the applicable depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%.
The old machine can be sold today for $50,000. The firm's tax rate is 25%, and the…
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