Wolfgang Machines Evaluation Assignment Help
1.Wolfgang, Inc. is evaluating whether to replace one of its machines. The current machine was purchased 4 years ago for $25,000 and falls into the MACRS 5-year class. It has 3 years of remaining life and a $6,000 salvage value three years from now. The current market value of the older machine is $14,500. Alternatively, the company could purchase a new machine for $36,000. Delivery of the new machine would cost $800 and installation would cost $200. The new machine is expected to increase inventory needs by $1,800 and accounts payable is expected to increase by $1,300. The new machine falls in the MACRS 5-year class, has a 3 year economic life and a savlage value at the end of 3 years of $8,000. It is not expected to increase revenue but is expected to decrease costs by $16,000 per year. The firm has a 40% tax rate and a cost of capital of 10%. The MACRS 5 year class uses the following percentages: 20%, 32%, 19%, 12%, 11%, and 6% in that order.Round all CFs to the nearest dollar. Calculate the OCF’s, tax effects, and NPV.
2.WCX, Inc. is considering the replacement of its old stamping machine with a new one. The old machine was purchased 3 years ago for $62,000 and was expected to last for 8 years. The old machine has been depreciated using straight-line depreciation with an expected salvage value at the end of its life of $6,000. The new machine will cost $84,000 and would be considered a MACRS 3 year asset. The new machine would have a useful life of 5 years and then be sold for $8,000. The new stamping machine would result in increased revenues of $12,000 per year and would cost an additional $2,000 per year to operate. If you decide to purchase the new machine, the old machine could be sold today for $40,000. The company has a 6% cost of capital and is in the 40% tax bracket. Its Cost Recovery Policy specifies 4 years as its payback requirement. Using payback period, discounted payback period, NPV, IRR, and MIRR, determine if this is a good project or not. 1.) Submit answer in excell 2.) Explain the steps involved in the Capital Budgeting process. 3.) Explain if this is a good project or not and why. Explain to the Board of Directors why.
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3.Merck, a major pharmaceutical, generated $7,808 million in net income for the year ended December 31, 2008.
i).The company declared and paid $3,278.5 million in dividends during 2008.
ii).Merck stock was selling for $57.37 per share on January 1, 2008, and for $30.40 per share on December 31, 2008.
iii).As of January 1, 2008, the company had 2,169 million shares of common stock outstanding. During 2008, the company repurchased 35.7 million shares. Assume that the purchases were made evenly throughout the year.
a.Compute the following ratios:
(1) Earnings per share
(3) Dividend yield
(4) Stock price return
b. What effect (increase, decrease, or no effect) did each of the three events above have on Merck’s return on equity ratio?
4.In 2008 Pfizer had 12,000 million shares of common stock authorized, 8,863 million in issue, and 6,746 million outstanding (figures rounded to the nearest million). Its equity account was as follows:
Common stock -$ 443
Additional paid-in capital-70,283
Retained earnings -44,1 48
a.What was the par value of each share?
b.What was the average price at which shares were sold?
c.How many shares had been repurchased?
d.What was the average price at which the shares were repurchased?
e. What was the net book value of Pfizer’s common equity?
5. In 1999 Pfizer had 9,000 million shares of common stock authorized, 4,260 million in issue, and 3,847 million outstanding (figures rounded to the nearest million). Its equity account was as follows:
Additional paid-in capital-5,416
Currency translation adjustment and contributions to an employee benefit trust have been deducted from retained earnings.
a. What is the par value of each share?
b. What was the average price at which shares were sold?
c. How many shares have been repurchased?
d. What was the average price at which the shares were repurchased?
e. What is the value of the net common equity?
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