Subject: Finance

1. Tabletop Ranches, Inc. is considering the purchase of a new helicopter for $325,000. The firm's old helicopter has a book value of $85,000 but can only be sold for $60,000. The new helicopter will be subject to 25% CCA. It is expected to save $62,000 for 7 years after taxes through reduced fuel and maintenance expenses. Tabletop Ranch is in the 40% tax bracket and has a 12% cost of capital. Calculate the net present value of the helicopter purchase and state whether or not the firm should buy it.
2. (a) Maestro Frozen Foods expects to earn 365,000in perpetuity before interest and taxes from its line of gourmet TV dinners. The Company has a debt to assets ratio of 40%. The cost of debt is 10%. If the company had no debt, its cost of capital would have been 15%. The firm's tax rate is 30%. What is the value of the firm? The Value of its equity? The Required rate of return rate of return on equity. The weighted average cost of capital?

(b) Explain homemade leverage and why it matters?

(c) Based on M&M without taxes and with taxes, how much time should a financial manager spend analyzing the capital structure of their firm? How about based on the static theory?