What discount rate should use to evaluate the equipment?

Assignment Help Financial Accounting
Reference no: EM132752666

As a member of the Finance Department of Ranch? Manufacturing, your supervisor has asked you to compute the appropriate discount rate to use when evaluating the purchase of new packaging equipment for the plant. Under the assumption that the? firm's present capital structure reflects the appropriate mix of capital sources for the? firm, you have determined the market value of the? firm's capital structure as? follows: 

Source of Capital           Market Values

Bonds                             ?$3,800,000

Preferred stock                ?$1,900,000

Common stock                 ?$6,500,000

Problem 1: To finance the? purchase, Ranch Manufacturing will sell 10?-year bonds paying interest at a rate of 7.2 percent per year? (with semiannual? payment) at the market price of ?$1,031. Preferred stock paying a ?$1.96 dividend can be sold for ?$25.59. Common stock for Ranch Manufacturing is currently selling for ?$54.51 per share and the firm paid a ?$2.96 dividend last year. Dividends are expected to continue growing at a rate of 4.9 percent per year into the indefinite future. If the? firm's tax rate is 30 ?percent, what discount rate should you use to evaluate the equipment? purchase?

Reference no: EM132752666

Questions Cloud

Corporate social responsibility is emerging trend : Corporate social responsibility is an emerging trend for businesses in today's environment.
What are all of the issues presented by the situation : However, she is also claiming an interest in the coins, and he is asserting an interest in the house. What are all of the issues presented by this situation?
Three business memos : In this module, you will write the second of the three business memos that you will write for the course.
What amount can the beneficiary expect to receive : Her initial deposit was $25,000, it grew over time to $37,000, but now is worth $21,000. Assuming there are no resets and ignoring fees and charges
What discount rate should use to evaluate the equipment? : Compute the appropriate discount rate to use, If the? firm's tax rate is 30 ?percent, what discount rate should you use to evaluate the equipment? purchase?
How much is the Gross Profit of the Sales Type Lease : Annual Rental payable at the end of each year 600,000. How much is the Gross Profit of the Sales Type Lease
Impact the development of investor profile : Which of the following is a personal value of Trina's that would impact the development of her investor profile?
Key competitors and summarize strengths : Identify its key competitors and summarize the strengths and weaknesses of one of the competitors.
Guaranteed lifetime withdrawal benefit : You are meeting with your new clients, Walden and Ashley, and after assessing their needs and situation

Reviews

Write a Review

Financial Accounting Questions & Answers

  Explain the shortcomings

Explain some of the actions of Media Tech leadership and the audit team based on the Fraud Triangle. Explain how Laura is being pressured

  Identify two internal control techniques

Identify two internal control techniques(other than segregation of duties) that our clients can use with Property, Plant & Equipment

  Indication of the adequacy of inventory levels

Which inventory costing method would you choose to use for income tax purposes and discuss the advantages and disadvantages of using a perpetual inventory system. From the data presented in this case, is there any indication of the adequacy of inv..

  What is the cost of leasing

What is the cost of leasing? Enter your answer as a positive value. Do not round intermediate calculations. Write out your answer completely.

  Find the effective annual rate

Calculating Annuity Present Value, EPR & Annual Percentage Rate - What rate should the shop report? Find the effective annual rate?

  Prepare any necessary journal entries to record depreciation

Prepare any necessary journal entries to record the depreciation expense and revaluation of the machinery. Assume that there is no change in the remaining

  What would be the effect on stanley assets

What would be the effect on Stanley's assets, liabilities, stockholders' equity, revenues, expenses, and net income for 2019? Enter all amounts

  Prepare the journal entries necessary to account

Prepare the journal entries necessary to account for the establishment of the rig and the changing balance of the restoration provision for the years

  How much of the total materials handling cost should be

If the materials handling cost is allocated on the basis of material moves, how much of the total materials handling cost should be allocated to the specialty

  What is the firms inventory conversion period

On average, a firm purchases $2,000,000 in merchandise a month. It has inventories equal to two month purchases on hand at all times. If the firm analyzes its accounts using a 360-day year, what is the firm’s inventory conversion period?

  Journal entries required to create and close the warranty

Make the Journal entries required to create and close the warranty period

  Find what monthly lease payment due in advance charged

Find What monthly lease payment due in advance should be charged for a tract of land valued at $25,000 if the agreed interest is 5.13% compounded annually?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd