FIN 571 TUTOR Imagine Your Future /fin571tutor.com FIN 571 TUTOR Imagine Your Future /fin571tutor.co | Page 83

5. You want to buy a new Computer Aided Design (CAD) system for your
business. The cost of the system is $150,000 and you expect to save over
$40,000 per year in reduced labor costs. Please calculate the net present
value of the CAD if your required return is 10 percent and the life of the
system is expected to be 5 years. (10 points)
6. Your company is considering converting its heating system in the main
office from coal to heating oil. The initial cost of removing the coal fired
furnace and installing an new oil fired unit is $60,000. The life of the
analysis is 7 years. In the past you spent $25,000 per year on coal. The
new company says you will spend no more than $15,000 per year on
heating oil. If your required return is 12 percent, should you make this
investment? Please calculate the net present value of this project. (10
points)
7. You have collected the following information:
a. the yield on your company’s preferred stock 8%
b. the yield on your company’s debt 10%
c. the required return on your company’s common stock and internal equity
12%
d. debt total $5,000,000
e. preferred stock current market value $10,000,000
f. common stock and retained earnings total value $20,000,000
Please calculate the pre-tax weighted average cost of capital (WACC) for
your company.
(10 points)
8. Your company’s marginal income tax rate is 40%. Please calculate the
post tax WACC from the information provided in problem 7. (10 points)
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FIN 571 Week 5 Learning Team Reflection
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