ALL WORK MUST BE DONE ON EXCEL SPREEDSHEETS PLEASE USE SEPERATE SHEET FOR EACH PROBLEM
P1-4
Marginal cost-benefit analysis and the goal of the firm Monsanto Corporation is considering the replacement of some of its older and outdated carpet manufacturing equipment. Its objective is to improve the efficiency of operations in terms of both speed and reduction in the number of defects. The company’s finance department has compiled pertinent data to conduct a marginal cost-benefit analysis for the proposed equipment replacement. The cash outlay for new equipment would be $600,000. The net salvage value of the old equipment is $250,000. The total benefits over the life of the new equipment (measured in today's dollars) would be $900,00. The sum of benefits from the remaining life of the old equipment (measured in today’s dollars) would be $300,000.
a. What are the marginal benefits of the proposed equipment replacement?
. What is the marginal cost of the proposed equipment replacement?
c. What is the net benefit of the proposed equipment replacement?
d. What would you recommend the firm do? Why?
P1-8
Marginal tax rates Using tax rate schedule given in Table 1.2, perform the following
a. Find the marginal tax rate for the following levels of sole proprietorship earnings before taxes $15,000; $60,000; $90,000; $150,000: $250,000: $450,000; and $1 million.
. Plot the marginal tax rates (measured on the y-axis). Explain the relationship between these variables
P1-12
Interest versus dividend expense MIcheals Corporation expects earnings before interest and taxes to be $50,000 for the cu
ent period. Using the flat corporate tax rate of 21%, compute the firm earnings after taxes and earnings available for common stockholders (earnings after taxes and prefe
ed stock dividends, if any) under the following conditions:
a. The firm pays $12,000 in interest.
. The firm pays $12,000 in prefe
ed stock dividends.
P2-3
Initial public offering On April 18, 2019, the video conferencing company, zoom completed its IPO on the NASDAQ. Zoom sold 9.911,434 shares of Class A stock with one vote per share at an offer price of $36 and an underwriter discount of $1.80 per share. Zoom's closing stock price on the first day of trading on the secondary market was $62, and 24,070,086 Class A shares were outstanding. There were also 232,318,285 shares of Class B common stock with 10 votes each outstanding and held privately by Zoom insiders.
a. Calculate the total proceeds for zooms IPO
. Calculate the total percentage underwriter discount
c. Calculate the dollar amount of the underwriting fee for Zoom IPO
d. Calculate the Zoom IPO underpricing
e. Calculate the net proceeds from Zoom IPO underpricing
f. Calculate Zooms market capitalization assuming that market value per share is the same for both classes of stock
g. What percentage of zooms total common stock Class A plus Class B do Class A stockholders own after the IPO? What percentage of votes do they control?