(a) TTM is evaluating different golf practice equipment. The "Super-Max" equipment costs $90,000. It costs $10,000 to operate each year and has three years of life. The straight-line method of depreciation is used and the equipment is fully depreciated to zero over 3 years. The equipment will have a salvage value of $20,000 at the end of the project's life. The relevant tax rate is 30%. The relevant discount rate is 12%. You are required to calculate

(i) Tax savings on depreciation each year

(ii) Tax payment on salvage value

(iii) NPV

(iii) The equivalent annual cost (EAC) of this equipment.

(b) The MD Manufacturing Company has $75m debt outstanding with pre-tax cost of 6% and its common stock has a value of $125m. The levered cost of equity is 14.34%. The corporate tax rate is 35%. Assuming an MM (1963) tax world, calculate the following for MD:

(i) the unlevered cost of equity.(

(ii) the weighted average cost of capital (WACC).(

(iii) the earnings before interest and tax (EBIT).(

(iv) Assume MD restructures its capital by issuing $25m in debt and uses the proceeds to buy back stocks. Calculate the market value of MD after restructuring.

(v) After the recapitalisation, what is MD's required return on equity?(