Flagstaff Enterprises has an equity cost of capital of 13%, a debt cost of capital of 7%, and a corporate tax rate of 35%. At present, Flagstaff has a 0.80 debt-equity ratio and plans to maintain it (at 0.80) in the future. Flagstaff expects to have a free cash flow in the coming year of $8 million, and this free cash flow is expected to grow at a rate of 3% per year thereafter (forever).

a) Calculate the value of Flagstaff's interest tax shield.

Please show all work

An injection molding system has a first cost of $175,000 and an annual operating cost of $95,000 in years 1 and 2, increasing by $6,000 per year thereafter. The salvage value of the system is 25% of the first cost regardless of when the system is retired within its maximum useful life of 5 years. Using a MARR of 11% per year, determine the ESL and the respective AW value of the system.

The ESL is ........ year(s) and AW value of the system is $  .......

matlab code to calculate cost (min cost) of generators for 30 bus IEEE.

L Ltd faces a cost of equity of 20% per annum and a cost of debt of 12%. These rates apply up to a level of gearing of 75%, i.e. where the company is 75% debt financed. The cost of both debt and equity then rise as shown below:

Required:

1. Determine the overall cost of capital for various proportions of debt finance and draw a graph to show the optimal capital structure.

2. What is the advantage to a firm of financing at the optimal capital structure?  

Kountry Kitchen has a cost of equity of 10.8 percent, a pretax cost of debt of 6.3 percent, and the tax rate is 35 percent. If the company's WACC is 9.01 percent, what is its debt–equity ratio?

2.75

.36

1.33

.27

.49

Western Electric has 26,500 shares of common stock outstanding at a price per share of $68 and a rate of return of 13.55 percent. The firm has 6,750 shares of 6.70 percent preferred stock outstanding at a price of $89.50 per share. The preferred stock has a par value of $100. The outstanding debt has a total face value of $371,000 and currently sells for 105.5 percent of face. The yield to maturity on the debt is 7.75 percent. What is the firm's weighted average cost of capital if the tax rate is 39 percent?

10.20%

11.01%

10.63%

10.43%

11.43%

Q3: Capital budgeting and cost of capital

Reno Co is considering a project that will cost $ 26,000 and result in the following cash flows:

The views of the directors of Reno Co are that all investment projects must be evaluated over four years of operations using net present value. You have given the information below to assist you to calculate the appropriate discount rate:

• Reno Co has 1.3 million shares of stock outstanding and the stock currently sell for $20 per share. The market value of the debt is $4.56 million and cost of debt is 6.061%
• The risk free rate is 3.5588% and the market risk premium is 10%
• You have estimated that Reno Co has a beta of 0.75
• Corporate tax rate is 34%

Required:

1. Estimate cost of equity using CAPM and define the security market line.
2. Estimate the cost of capital.
3. Evaluate the investment project using the NPV criteria and cost of capital estimated above.
4. State clearly any limitations and assumptions that you made in your calculations.

Preparing a Schedule of Cost of Finished Goods Manufactured, Cost of Goods Sold Schedule, and an Income Statement.

Listed below is information related to RRR Co’s manufacturing activities for the month of October 2020.

Ending Balance                       Beginning Balance

Materials Inventory                                                                 $197,000                                    $ 211,000

Work in Process Inventory                                                       59,000                                         78,000                    

Finished Goods Inventory                                                        91,000                                           82,000

During October 2020, RRR Company purchased $105,000 of raw materials and incurred direct labor costs of $77,100. The company applies overhead at a rate of 45% of direct labor cost. General, selling and administrative costs amounted to $36,100, and the company sold 39,400 units of its product at a price of $37.84 each.

Directions:

1. Prepare RRR’s schedule of cost of finished goods manufactured for October 2020.
2. Determine RRR’s cost of goods sold during October 2020.  
3. Prepare RRR’s income statement for the month ended October 31,2020 (ignoring interest expense and income taxes)

Q3: Capital budgeting and cost of capital

Reno Co is considering a project that will cost $ 26,000 and result in the following cash flows:

The views of the directors of Reno Co are that all investment projects must be evaluated over four years of operations using net present value. You have given the information below to assist you to calculate the appropriate discount rate:

• Reno Co has 1.3 million shares of stock outstanding and the stock currently sell for $20 per share. The market value of the debt is $4.56 million and cost of debt is 6.061%
• The risk free rate is 3.5588% and the market risk premium is 10%
• You have estimated that Reno Co has a beta of 0.75
• Corporate tax rate is 34%

Required:

1. Estimate cost of equity using CAPM and define the security market line.
2. Estimate the cost of capital.  
3. Evaluate the investment project using the NPV criteria and cost of capital estimated above.
4. State clearly any limitations and assumptions that you made in your calculations.