Quiz 10 - FIN 360 Quiz #10 Name: _Jeremy Pflug_ A company...

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FIN 360 Quiz #10 Name: _Jeremy Pflug _________________ A company is considering investing in a potentially profitable machine. The machine will cost $90,000 today, will have a five-year life and will be depreciated over a 5-year life on a straight-line basis toward a zero salvage value. The company has estimated the performance of the new machine and believes the machine have the following estimates: $40,000 in sales per year; $5,000 in cost of goods sold per year; $5,000 in administrative expenses per year. To get an estimate of cost of capital, the company collects the following information. The company paid $2 of dividend last year. An estimated growth rate is 5%. The company’s stock is currently selling for $34 per share. The flotation cost associated with issuing new stocks is $4 per share. The company’s bonds are selling at a price of $877.6. The bonds have 8% annual coupon rate, 10 years to maturity and face value of $1,000. The company has a corporate tax rate of 30%. Currently the company has the optimal capital structure with 40% of debt and 60% of equity in the
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This note was uploaded on 12/17/2011 for the course MBA 500 taught by Professor Dr.jones during the Spring '11 term at Morehead State.

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Quiz 10 - FIN 360 Quiz #10 Name: _Jeremy Pflug_ A company...

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