Microsoft Word - Sp15_Final_Exam.doc

Please show me your work: I want to understand it in a simplest way

I am using BA II Plus calculator

Cash Flow:

Goodman Gears is considering replacing an existing piece of machinery with a more sophisticated machine. The old machine was purchased 3 years ago at a cost of $50,000 and this amount was being depreciated under MACRS using a 5 year cost recovery period. The old machine has a salvage value of $10,000 and can last 5 more years. The new machine that is being considered costs $76,000 and has an installation cost of $4,000. The firm is subject to a tax rate of 40%. The revenues and expenses (excluding depreciation and interest) associated with the new and old machine are given below.

	New Machine	Old Machine
Year	Revenue	Expenses	Revenue	Expenses
1	$750,000	$720,000	$674,000	$660,000
2	$750,000	$720,000	$676,000	$660,000
3	$750,000	$720,000	$680,000	$660,000
4	$750,000	$720,000	$678,000	$660,000
5	$750,000	$720,000	$674,000	$660,000

1. Calculated the initial investment associated with replacement of the old machine by the new machine.
2. Determine the incremental operating cash inflows associated with the proposed replacement for years 1 and 5 only.

Microsoft Word - Sp15_Final_Exam.doc

2) Leadup Comminications has paid the dividends shown in the previous 6 years.

Year Dividend per share

2014 $2.97 2013 2.83 2012 2.65

2011 2.46

2010 2.39

2009 2.25

2008 2.24

The firms dividend in next year is expected to be $3.11.

1. If you can earn 13% on alternative risk investments, what is the most you would be willing to pay per share?
2. If the firms dividends were expected to grow at previous rates through 2018, and then be the same for the indefinite future (ie, zero growth), what is the most you would be willing to pay per share? Assume the same discount rate.