Question # 1 Given the following information about company XYZ and the proposed investments, you are asked to determine the total investment based on cost of capital analysis. As part of your answer, provide an investment curve including the investment threshold Proposed investments Investment Capital ($) in millions 12 15 8 10 18 | Investment Return (%) 12 15 Investment Name 13 Investment Plan Debt 40% Preferred Stocks 15% Equity (Retained Earnings) 45% Cost Data Debt: Yield-12% Tax rate 40% Preferred Stocks Dividend-15% Preferred stock initial selling price -$100 Selling cost $10 Equity Dividend for first year $4 Common stock initial selling price Selling cost $5 Growth Rate 7% $55 Question # 2 You are asked to assist Company XYZ in selecting one of the following three alternatives. a) Purchase new Equipment: Equipment 1 Equipment 2 Purchase Price $115,000 Depreciation: MACRS 7 years Annual Expenses: $8,500 Tax rate: 40% Cost of Capital: From Question 1 Tire Change Cost: $5,000 Per 5 Purchase Price $90,000 Depreciation: MACRS 7 years Annual Expenses: $2,500 Tax rate: 40% Cost of Capital: From Question 1 Tire Change Cost: $5,000 Per 5 years years Annual estimated income: Annual estimated income: Year Income (S) Year Income (S) $56,000 $60,000 $45,000 $32,000 $32,000 30,000 7 $25,000 $20,000 $47,500 $51,000 $38,000 $23,500 $25,150 14500 11,000 $11,000 MACRS 7 year depreciation rates MACRS 7 year depreciation rates YearDepreciation rate Depreciation rate 0.143 0.245 0.175 0.125 0.089 0.089 0.089 0.045 Year 0.143 0.245 0.175 0.125 0.089 0.089 0.089 0.045 2 4 5 6 7 8 4 8 Equipment3 Purchase Price $115,000 Depreciation: MACRS 7 years Annual Expenses: $8,500 Tax rate: 40% Cost of Capital: From Question 1 Tire Change Cost: $5,000 Per 5 years years Annual estimated income: The Equipment will be purchased according to the following payment option Advanced Payment of 20% Monthly Payment of $1,165 for 8 Interest rate is 5% Year Income(S) $56,000 $45,000 32,000 $32,000 30,000 $25,000 $20,000 6 MACRS 7 year depreciation rates Year Depreciation rate 0.143 0.245 0.175 0.125 0.089 0.089 0.089 Question # 3 After four (4) years, Company XYZ decided to replace the purchased equipment in part (a). The old equipment will be sold for $20,000. The new equipment will be purchased for a cost of $80,000 and will be written off using five years MACRS The new crane will provide cost savings and operation benefits, compared to the old one in accordance with the following schedule. The corporation has a tax rate of 35% and cost of capital from question 1. Year Income (S) 15,000 2 $13,000 $8,500 4 $12,500 3$4,000 2,500 6 Question # 1 Given the following information about company XYZ and the proposed investments, you are asked to determine the total investment based on cost of capital analysis. As part of your answer, provide an investment curve including the investment threshold Proposed investments Investment Capital ($) in millions 12 15 8 10 18 | Investment Return (%) 12 15 Investment Name 13 Investment Plan Debt 40% Preferred Stocks 15% Equity (Retained Earnings) 45% Cost Data Debt: Yield-12% Tax rate 40% Preferred Stocks Dividend-15% Preferred stock initial selling price -$100 Selling cost $10 Equity Dividend for first year $4 Common stock initial selling price Selling cost $5 Growth Rate 7% $55 Question # 2 You are asked to assist Company XYZ in selecting one of the following three alternatives. a) Purchase new Equipment: Equipment 1 Equipment 2 Purchase Price $115,000 Depreciation: MACRS 7 years Annual Expenses: $8,500 Tax rate: 40% Cost of Capital: From Question 1 Tire Change Cost: $5,000 Per 5 Purchase Price $90,000 Depreciation: MACRS 7 years Annual Expenses: $2,500 Tax rate: 40% Cost of Capital: From Question 1 Tire Change Cost: $5,000 Per 5 years years Annual estimated income: Annual estimated income: Year Income (S) Year Income (S) $56,000 $60,000 $45,000 $32,000 $32,000 30,000 7 $25,000 $20,000 $47,500 $51,000 $38,000 $23,500 $25,150 14500 11,000 $11,000 MACRS 7 year depreciation rates MACRS 7 year depreciation rates YearDepreciation rate Depreciation rate 0.143 0.245 0.175 0.125 0.089 0.089 0.089 0.045 Year 0.143 0.245 0.175 0.125 0.089 0.089 0.089 0.045 2 4 5 6 7 8 4 8 Equipment3 Purchase Price $115,000 Depreciation: MACRS 7 years Annual Expenses: $8,500 Tax rate: 40% Cost of Capital: From Question 1 Tire Change Cost: $5,000 Per 5 years years Annual estimated income: The Equipment will be purchased according to the following payment option Advanced Payment of 20% Monthly Payment of $1,165 for 8 Interest rate is 5% Year Income(S) $56,000 $45,000 32,000 $32,000 30,000 $25,000 $20,000 6 MACRS 7 year depreciation rates Year Depreciation rate 0.143 0.245 0.175 0.125 0.089 0.089 0.089 Question # 3 After four (4) years, Company XYZ decided to replace the purchased equipment in part (a). The old equipment will be sold for $20,000. The new equipment will be purchased for a cost of $80,000 and will be written off using five years MACRS The new crane will provide cost savings and operation benefits, compared to the old one in accordance with the following schedule. The corporation has a tax rate of 35% and cost of capital from question 1. Year Income (S) 15,000 2 $13,000 $8,500 4 $12,500 3$4,000 2,500 6