Author Question: A new machine can be purchased for 1,800,000. It will cost 35,000 to ship and 15,000 to fine-tune ... (Read 70 times)

Diane · **on:** Jul 10, 2018

A new machine can be purchased for 1,800,000. It will cost 35,000 to ship and 15,000 to
fine-tune the machine. The new machine will replace an older version that is fully depreciated and
will be sold for 200,000.

The firm's income tax rate is 35. What is the initial outlay for capital
budgeting purposes?
A) 1,720,000 B) 1,580,000 C) 1,650,000 D) 1,630,000

Question 2

Donner, Inc will finance a proposed investment by issuing new securities while maintaining its
optimal capital structure of 60 debt and 40 equity. The firm can issue bonds at a price of 950.00
before 15 flotation costs.

The 10-year bonds will have an annual coupon rate of 8 and a face
value of 1,000. The company can issue new equity at a before-tax cost of 16 and its marginal tax
rate is 34. What is the appropriate cost of capital to use in analyzing this project?
A) 11.81 B) 8.77 C) 9.97 D) 3.63

vickyvicksss · **Reply #1 on:** Jul 10, 2018

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