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ABC Products needs to replace its rawhide tanning and molding equipment. It can be used for ve years and will have no salvage value. The equipment oosts $930,000. The rm can lease it for $245,000 a year, or it can borrow the money to purchase the equipment at 9% The rm's tax rate is 40%. The CCA rate is 20% {Class 3!.What is the present value of the depreciation tax shield?uJ Select onew +1 If investors require a 6% nominal return and the expected ination rate is 3.5% what is the expected real retum?4J +1 Al's Audio has a cost of debt of T percent, a cost of equity of 11 percent, and a cost of preferred stock of 0 percent. The weight for debt is 0.1 E, the weight for preferred shares is 0.34, and the weight for common stock is 0.5. The company's tax rate is 34 percent. 1ll'v'hat is the weighted average cost of capital for Al's hudio Shop?uJ Select onew +1 Today, your grandmother gave you a gift of $25,500 to help pay for your college education. She told you that this amount was the result of a onetime investment at THE. interest 14 years ago. Howr much did your grandmother originally invest?+J +1 For a project with an initial investment of $40,000 and cash inflows of $11,000 a year for ve years, calculate NP'v' given a required return of 10Wam +1 'r'our portfolio co mists oftwo stoclcs. 'r'ou have $2000 in stock A and $8000 in stock E. The returns for stock A have a standard deviation of 20% and the returns for stock B have a standard deviation of 10% The correlation coefcient between A and E is 0.1. 1What is your portfolio standard deviation?+J +1 You are considering a project that costs $150 and has expected cash ows of $55, $60.50, and $56.55 over the next three years. If the appropriate discount rate for the project's cash ows is 10%, what is the net present value of this project?J Type of security Debt Equity Preferred stock Tax rate WACC Cost Weight After tax cost 7% 0.16 0.0462 11% 0.5 11% 8% 0.34 8% 34% 8.96% Gif Interest Years Original investment $25,500 7% 14 $9,889.34 Initial investment Annual cash flows Years Required return NPV $40,000 $11,000 5 10% $1,698.65 Stock A B Correlation coefficient A,B Portfolio standard deviation Value Standard deviation Weight $2,000 20% 20.00% $8,000 10% 80.00% 0.1 9.30% Year Cash flow 0 ($150) 1 $55 2 $60.50 3 $66.55 Discount rate 10% NPV $0.00 You purchase a machine for $200,000 which belongs in a 30% CCA class. What is the present value of the CCA tax shield on the machine if it is sold at the end of the sixth year for $50,000, your tax rate is 34%, and the appropriate discount rate is 109W:J p Ernst's Electrical has a bond issue outstanding with ten years to maturity. These bonds have a $1,000 tace yalue, a 5 percent coupon, and pay interest annually. The bonds are currently quoted at 05 percent of face yalue. What is Ernst's pretax cost of debt?+J p Your company is considering the purchase of a eet of cars for $200,000. lt can borrow at 10%. The cars will be used for four years. at the end of four years they will be worthless. You call a leasing agent and find that the cars can be leased for $55,000 per year. The corporate tax rate is 4091i and the cars belong in CCA class 10 {a 3091': class}, what is the net adyantage to leasingW p A tirm has a tax rate of 35%, an unleyered rate of return of 12%, total debt of $2,000, and an EBIT of $400.00. What is the unleyered value of the firm'E'dJ 1J Etling lnc.'s dividend is expected to grow at Till: tor the next two years and then at 4% forever. If the current diyidend is $3 and the required return is 15%, what is the price of the stock?|-J Years to maturity Face value Coupon rate Price Pretax cost of debt 10 $1,000 5% $950 5.67% Year Current dividend Required return Terminal value Price today Growth rate Dividend 1 7% 3.21 2 7% 3.4347 3 4% 3.572088 $3 15% $32 $29.94 EBIT Tax EBIT after tax Unlevered rate Unlevered value $400,000 $140,000.00 $260,000.00 12% $2,166,666.67