Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
14th Edition
ISBN: 9780133507690
Author: Lawrence J. Gitman, Chad J. Zutter
Publisher: PEARSON
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Chapter 7.1, Problem 7.1RQ

What are the key differences between debt and equity?

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A small manufacturer is considering an equipment replacement project. The new equipment would have an installed cost of $125,000 and would replace existing equipment that was purchased 3 years ago at an installed cost of $80,000. If the company moves forward with the replacement, it could sell the old equipment for $25,000. Purchasing the new equipment would result in the company's current assets increasing by $12,000 and current liabilities increasing by $9,000. The company uses the 5-year MACRS table for depreciation, and is taxed at 21%. a) What is the accumulated depreciation of the old equipment? b) What is the current book value of the old equipment? c) What is the amount of depreciation recapture/recovery? d) What is the tax on the sale of the old equipment? e) What are the after-tax proceeds from the sale of the old equipment? f) What is the change in Net Working Capital? g) What is the initial investment for the project?
Last year Lewis Bank paid an annual dividend of $7 per share. The bank expects the growth of its dividends to be stable at 2% per year going forward. a) If investors require an 8% return, what is the current value of Lewis Bank's stock? (round to nearest cent) b) If the stock currently trades at $124.55 per share, what is the dividend growth rate investors expect? (round to nearest percent)
A food processing company is considering replacing essential machinery. Cost and relevant cash flow details are provided in the table at the right. The company requires an 11% return on its capital. a) What is the present value of the yearly cash flows? Use a Time Value of Money function for full credit. (round to nearest dollar) b) What is the net present value of the project? (round to nearest dollar) c) What is the internal rate of return of the project? Use a Time Value of Money function for full credit. (round to two decimal places)

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Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)

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