Question

1) You are evaluating a potential investment in equipment. The equipment's basic price is $187,000, and shipping costs will be $3,700. It will cost another $22,400 to modify it for special use by your firm, and an additional $9,400 to install it. The equipment falls in the MACRS 3-year class that allows depreciation of 33% the first year, 45% the second year, 15% the third year, and 7% the fourth year. You expect to sell the equipment for 24,500 at the end of three years. The equipment is expected to generate revenues of $165,000 per year with annual operating costs of $91,000. The firm's marginal tax rate is 35.0%. What is the after-tax operating cash flow for year 1? options: $0,575 $0,374 $74,000 $73,799 $73,425

2) Costly Corporation plans a new issue of bonds with a par value of $1000, a maturity of 36 years, and an annual coupon rate of 11.0%. Flotation costs associated with a new debt issue would equal 8.0% of the market value of the bonds. Currently, the appropriate discount rate for bonds of firms similar to Costly is 9.0%. The firm's marginal tax rate is 30%. What will the firm's true cost of debt be for this new bond issue?

	8.37%
	9.83%
	11.96%
	6.88%
	13.43%

3) Growing, Inc. is a firm that is experiencing rapid growth. The firm yesterday paid a dividend of $3.80. You believe that dividends will grow at a rate of 21.0% per year for three years, and then at a rate of 9.0% per year thereafter. You expect that the stock will sell for $60.64 in three years. You expect an annual rate of return of 24.0% on this investment. If you plan to hold the stock indefinitely, what is the most you would pay for the stock now?

	$39.53
	$31.55
	$42.66
	$26.64
	$36.51

4)You are considering buying common stock in Grow On, Inc. The firm yesterday paid a dividend of $4.40. You have projected that dividends will grow at a rate of 10.0% per year indefinitely. If you want an annual return of 21.0%, what is the most you should pay for the stock now?

	$44.00
	$40.00
	$20.95
	$23.05
	$48.07

Answer 1

$73,799 (165000-91000) 0.65+((187000+3700+22400+9400)0.33*0.35) Operating cash flow