SHOW WORK IS NOT NECESSARY
Q1
DataPoint Engineering is considering the purchase of a new piece of equipment for $220,000. It has an eight-year midpoint of its asset depreciation range (ADR). It will require an additional initial investment of $120,000 in nondepreciable working capital. Thirty thousand dollars of this investment will be recovered after the sixth year and will provide additional cash flow for that year. income before depreciation and taxes for the next six are shown in the following table. Use Table 1211, Table 1212. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year Amount 1 $179,000 2 156,000 3 126,000 4 111,000 5 93,000 6 83,000 r______________ The tax rate is 25 percent. The cost of capital must be computed based on the following: Cost (aftertax) Weights Debt Kd 7.50% 30% Preferred stock Kp 11.20 10 Common equity (retained earnings) Ke 16.00 60 a. Determine the annual depreciation schedule. (Do not round intermediate calculations. Round your depreciation base and annual depreciation answers to the nearest whole dollar. Round your percentage depreciation answers to 3 decimal places.) a. Determine the annual depreciation schedule. (Do not round intermediate calculations. Round your depreciation base and annual depreciation answers to the nearest whole dollar. Round your percentage depreciation answers to 3 decimal places.) Depreciation Percentage Annual Base Depreciation Depreciation b. Determine the annual cash flow for each year. Be sure to include the recovered working capital in Year 6. (Do not round intermediate calculations and round your answers to 2 decimal places.) 1 l c. Determine the weighted average cost of capital. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Weighted average cost of capital -'- d-1. Determine the net present value. (Use the WACC from part c rounded to 2 decimal places as a percent as the cost of capital (e.g., 12.34%). Do not round any other intermediate calculations. Round your answer to 2 decimal places.) Net present value Home Security Systems is analyzing the purchase of manufacturing equipment that will cost $48,000. The annual cash inflows for the next three years will be: Year Cash Flow 1 $ 24,000 2 22,000 3 17,000 ' Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the financial calculator method. 3. Determine the internal rate of return. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Internal rate of return -" Given the following information: Percent of capital structure: Debt 30% Preferred stock 15 Common equity (retained earnings) 55 ' Additional information: Bond coupon rate 10% Bond yield to maturity 8% Dividend, expected common $ 4.00 Dividend, preferred $ 11.00 Price, common $ 55.00 Price, preferred $ 118.00 Flotation cost, preferred $ 2.80 Growth rate 7% Corporate tax rate 35% Calculate the Hamilton Corpfs weighted cost of each source of capital and the weighted average cost of capital. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Debt %
