(15 pts) 5. The president of Barkov Corporation has asked you to evaluate the proposed acquisition of new refrigeration equipment. The equipment's price is $500,000 with shipping and installation costs of $100,000. The equipment will be depreciated to a zero-salvage value over 10 years on a straight-line basis. Purchase of the equipment would require an increase in net operating working capital of $80,000. The equipment would increase the firm's before-tax revenues by $200,000 per year but would also increase operating costs by $50,000 per year. The machine is expected to be used for ten years and then sold for $50,000. The firm's marginal tax rate is 25%, and the project's cost of capital is 18%. Should the new machine be purchased? Show computations. (15 pts) 6. Knight Corporation is contemplating the appropriate level of current assets. The decision to determine the appropriate level of current assets will be based on return on equity. Knight is considering two alternatives; current assets would be 70 percent of sales or current assets would be 20 percent of sales. Knight's sales are $30 million dollars. Knight expects its EBIT to be $5,000,000. Knight's fixed assets total $20 million. Knight has a 60 percent debt ratio. Knight pays 10 percent interest on its debt and Knight has a 25 percent tax rate. Required: a) Determine the return on equity for the two policies. b) Which policy has more risk? Explain. c) Explain which policy you would chose. (12 pts) 7. Kyle Corporation sells its product for $600 per unit. The variable cost per unit for the product is $400. Kyle's fixed cost is $30,000,000. Required: a) Determine Kyle's breakeven point in revenues. b) Determine the operating income, if Kyle sold 120,000 units. c) Explain if Kyle Corporation should be concerned about the long-run success of the business. If management is concerned, what strategies might they consider?