Component cost of debt for use in the wacc calculation

Assignment Help Financial Management

Reference no: EM131937988

1. Mars Inc. is considering the purchase of a new machine which will reduce manufacturing costs by $5,000 annually. Mars will use the MACRS accelerated method to depreciate the machine, and it expects to sell the machine at the end of its 5-year operating life for $10,000. The firm expects to be able to reduce net operating working capital by $15,000 when the machine is installed, but required working capital will return to the original level when the machine is sold after 5 years. Mars's marginal tax rate is 40 percent, and it uses a 12 percent cost of capital to evaluate projects of this nature. If the machine costs $60,000.

a. -$15,394

b. -$14,093

c. -$58,512

d. -$21,493

e. -$46,901

2. Several years ago the Bakoj Company sold a $1,000 par value, noncallable bond that now has 20 years to maturity and a 7.00% annual coupon that is paid semiannually. The bond currently sells for $950, and the company’s tax rate is 42%. What is the component cost of debt for use in the WACC calculation?

4.81% 4.64% 4.12% 4.49% 4.34%

Reference no: EM131937988

Questions Cloud

Popular during the interwar period : Why were more "extreme" ideologies (such as communism and fascism) so popular during the interwar period?

How historical and social trends created the issue : Describe the issue; then discuss how historical and social trends created this issue and why it is now in the foreground for the field.

What is the probability of default each year : What is the probability of default each year?

What aspects of servant leadership does the leader exhibit : What type of leadership characteristics does the leader demonstrate? What aspects of servant leadership does the leader exhibit?

Component cost of debt for use in the wacc calculation : The bond currently sells for $950, and the company’s tax rate is 42%. What is the component cost of debt for use in the WACC calculation?

How the un report reflects social work values : How the U.N. Report reflects social work values and ethics. Give one recommendation how the United States could/should promote the Report's global work agenda

What is the net present worth of project : The firm's tax rate is 32%, and its market interest rate is 22%. What is the net present worth of this project?

Who is edward the black prince : Who is Edward the Black Prince? What is he known for? When was he significant? Where did his most significant achievements take place? Why was he a significant?

Exploring the department of labor information : Explore the Department of Labor's information regarding current employment and wages for mental health counselors, as well as O*Net's summary description.

User Account

All Pages