Andrew Cooper BA 372: Capital Budgeting Problem 2 e proposed acquisition of a new computer The president of Real Time, Inc. has asked you to evaluate the proposed acquisition costs would d be an system. The system's price is $250.000. In addition, installation and transportation COSS additional $35.000. The system falls into the MACRS 3-year class. Purchase of the computer would require an increase in net working capital of St . Ris estimated that the computer would increase the firm's before-tax revenues by $95.000 per year but would also increase costs by $5,000 per year. The system is expected to be used for 3 years and then be sold to The firm's marginal tax rate is 26 percent. The firm is financed in the following way Bonds: There is an outstanding bond issue paying a 6% coupon semiannually. The face values and the bond price is $995. The bonds mature in 10 years. The total face value of the bonds is $2,000,000 Preferred Stock: There are 10.000 shares of preferred stock outstanding that pay an 8% dividend on par value of $100. The current price per share is $90. Common Stock: There are 100,000 shares outstanding selling at $70 per share. The expected dividend for the upcoming year is $3.00 per share and that is expected to grow at 8 per year. Calculate the WACC, NPV and IRR for the project. Should the company do it? Explain your answer. ke: a = 9 Dollar-value LIFO method The following information belongs to Best Buy company Inventory at end-of-year prices Date Price index (percentage) Dec. 31, 2009 Dec. 31, 2010 Dec 31, 2011 Dec. 31, 2012 $400,000 $598,000 $600,000 $702,000 100 115 120 130 Compute the inventory at the end of each year using dollar-value LIFO method. Andrew Cooper BA 372: Capital Budgeting Problem 2 e proposed acquisition of a new computer The president of Real Time, Inc. has asked you to evaluate the proposed acquisition costs would d be an system. The system's price is $250.000. In addition, installation and transportation COSS additional $35.000. The system falls into the MACRS 3-year class. Purchase of the computer would require an increase in net working capital of St . Ris estimated that the computer would increase the firm's before-tax revenues by $95.000 per year but would also increase costs by $5,000 per year. The system is expected to be used for 3 years and then be sold to The firm's marginal tax rate is 26 percent. The firm is financed in the following way Bonds: There is an outstanding bond issue paying a 6% coupon semiannually. The face values and the bond price is $995. The bonds mature in 10 years. The total face value of the bonds is $2,000,000 Preferred Stock: There are 10.000 shares of preferred stock outstanding that pay an 8% dividend on par value of $100. The current price per share is $90. Common Stock: There are 100,000 shares outstanding selling at $70 per share. The expected dividend for the upcoming year is $3.00 per share and that is expected to grow at 8 per year. Calculate the WACC, NPV and IRR for the project. Should the company do it? Explain your answer. ke: a = 9 Dollar-value LIFO method The following information belongs to Best Buy company Inventory at end-of-year prices Date Price index (percentage) Dec. 31, 2009 Dec. 31, 2010 Dec 31, 2011 Dec. 31, 2012 $400,000 $598,000 $600,000 $702,000 100 115 120 130 Compute the inventory at the end of each year using dollar-value LIFO method
