Question
a) The manufacturer installed its (old) headlamps manufacturing equipment three years ago. Some of that older equipment will become unnecessary when the company goes into
a) The manufacturer installed its (old) headlamps manufacturing equipment three years ago. Some of that older equipment will become unnecessary when the company goes into production of its new product. The obsolete equipment, which originally cost $50 million, has been depreciated straight-line over an assumed tax life of 5 years, but it can now be sold for $20 million. The firm's tax rate is 35 percent. What is the after-tax cash flow from the sale of the equipment?
b)Starlite stock is selling for $60. Year end dividends are projected to be $2.50. The treasury bill rate is 4% and the market risk premium is 8%. The beta of the stock is 0.85. If the stock is priced fairly today, what will be the price of the by the end of the year?
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