20. The primary purpose of a cash budget is to A) determine the level of investment in current and fixed assets. B) determine accounts payable. C) provide a detailed plan of future cash flows. D) determine the estimated income tax for the year. Section B Show ALL working 1. Boulangerie Bouffard expects to sell 1 million croissants next year for $1.25 each. Variable cost of a croissant is $0.75. Fixed costs are $150,000, depreciation $200,000 and the tax rate is 25%. If the number of croissants sold increases by 10%, and all other variables remain the same, how much will free cash flow increase? (6 marks) 2. Moore Financing Corporation has preferred stock in its capital structure paying a dividend of $3.75 and selling for $25.00. If the marginal tax rate for Moore is 34%, what is the after-tax cost of preferred financing? (1 mark) 3. The target capital structure for QM Industry is 40% common stock, 10% preferred stock and 50% debt. If the cost of equity is 18%, the cost of preferred stock is 10% and the before cost of debt is 8%, and the firm's tax rate is 35%, what is QM's weighted average cost of capital. (4 marks) 4. Hoak Company's common stock is currently selling for $50. Last year's dividend was $1.83 per share. Investors expect dividends to grow at an annual rate of 9% into the future. What is Hoak's cost of common equity? (1 mark) b. Selling new common stock is expected to decrease the price of the stock by $5.00. What is the cost of new common stock? Dividends will remain the same. (1 mark) a. 5. Sutter Corporation's common stock is selling for $16.80 a share. Last year, Sutter paid a dividend of $.80. Investors are expecting Sutter's dividends to grow at a rate of 5% per year. What is the cost of common equity? (1 mark) 6. The preferred stock of Wells Co. sells for $15.30 and pays a $1.75 dividend. What is the cost of capital for preferred stock? (Imark) 7. Cobrots Corporation is considering the purchase of a new production machine for $18,000,000, the machine will incur shipping cost of $200,000, installation of $300,000 and site preparation of $500,000. The machine is expected to last for 4 years. At the end of the 4 years, the machine has a salvage value of $200,000. The purchase of this machine would result in revenue over the period respectively. (35 marks) Yr. 1 $37.500,000 Yr. 2 $42,500,000 Yr. 3 $35,000,000 Yr. 4 $37,500,000 The cost of good sold is 25% of the revenue for each of the 4 years. Yearly operating cost is $13,000,000. The firm uses a 34% marginal tax rate and the annual rate of return is 15%. a. What is the initial cost outlay associated with this project? b. What is the annual net cash flows associated with this project? c. What is the NPV of the project? d. Should this machine be purchased? Justify your response