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:

1. The marginal added benefits of the proposed new robotics

2. The marginal added cost of the proposed new robotics

3. The net benefit of the proposed new benefits

4. 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.

5. 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 =