Question
Problem 1: Marginal Cost-benefit analysis and the goal of the firm (24 points) Similar to P1-4 Greg, capital budgeting analyst for Middleton Inc., has been
Problem 1: Marginal Cost-benefit analysis and the goal of the firm (24 points) Similar to P1-4
Greg, capital budgeting analyst for Middleton Inc., has been asked to evaluate a proposal. The manager of the automotive division believes that replacing the robotics used on the heavy truck gear line will produce total benefits of $315,000 over the next 5 years. The existing robotics would produce benefits of $120,000 over that same period. An initial investment of $90,000 would be required to install the new equipment. The manager estimates that the existing robotics can be sold for $30,000. Show how Greg will apply marginal cost benefit analysis techniques to determine the following:
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The marginal added benefits of the proposed new robotics
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The marginal added cost of the proposed new robotics
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The net benefit of the proposed new benefits
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What should Greg recommend the company do? Give detailed explanation as to why?
Problem 2: Initial Public Offering (24 points) Similar to P2-4. Round answers to nearest hundredth.
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Matters Inc. completed its IPO and listed it on the NYSE on May 8. The company sold 7,250,000 shares of stock at a price of $12 with an underwriting fee of 5%. Investors were paying $10 per share for the outstanding stock of 25,000,000.
a. Calculate Total proceeds = (IPO offer price) (Number of IPO shares issued) =
b. Calculate dollar amount of underwriting fee ($) =
c. Calculate Net proceeds = Total proceeds Underwriting fee =
d. Calculate market capitalization of outstanding stock =
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