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Help with c) please GlaxoSmithKline plc is a pharmaceutical company. It is considering the replacement of one of its existing machines with a new model.
Help with c) please
GlaxoSmithKline plc is a pharmaceutical company. It is considering the replacement of one of its existing machines with a new model. The existing machine can be sold now for 8,000. The new machine costs 50,000 and will generate free cash flows of 11,416.55 pa. over the next 6 years. The corporate tax rate is 35%. The new machine has average risk. GlaxoSmithKline's debt-equity ratio is 0.5 and it plans to cost of equity is 13.10% a) Compute GlaxoSmithKline's weighted average cost of capital. b) What is the NPV of the new machine and should GlaxoSmithKline replace the old machine with the new one? c) The average debt-to-value ratio in the pharmaceutical industry is 20%. What would GlaxoSmithKline's cost of equity be if it took on the average amount of debt of its industry at a cost of debt of 5%? Do this calculation assuming the company does not pay taxes. GlaxoSmithKline plc is a pharmaceutical company. It is considering the replacement of one of its existing machines with a new model. The existing machine can be sold now for 8,000. The new machine costs 50,000 and will generate free cash flows of 11,416.55 pa. over the next 6 years. The corporate tax rate is 35%. The new machine has average risk. GlaxoSmithKline's debt-equity ratio is 0.5 and it plans to cost of equity is 13.10% a) Compute GlaxoSmithKline's weighted average cost of capital. b) What is the NPV of the new machine and should GlaxoSmithKline replace the old machine with the new one? c) The average debt-to-value ratio in the pharmaceutical industry is 20%. What would GlaxoSmithKline's cost of equity be if it took on the average amount of debt of its industry at a cost of debt of 5%? Do this calculation assuming the company does not pay taxesStep by Step Solution
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