The Homestretch Corporation has been using their current network system for 2 years and it originally cost $395,000. The system is being depreciated using the 3-year MACRS category. Homestretch can sell their current system for $90,000 and they are considering replacing this network with a newer network that costs $535,000. The new machine will save $82,000 each year for the next four years and is on the 3-year MACRS category as well. The Homestretch Corporation is in the 25% tax bracket and below you will find information that you can use to calculate their weighted average cost of capital. Answer the questions that follow (a,b,c&d) (40 points): Percent of Capital Structure Debt 35%) Preferred Stock 15% Common Stock 50% Additional Information $1,000 Bond - Term 5 years $1,000 Bond - Price $1,003 $1,000 Bond - Coupon Rate 5% Preferred Stock - Dividend $1.23 Preferred Stock - Price $27 01 STOCK Preferred Stock - Flotation Common Stock - Dividend $2.33 Common Stock - Price $35 Growth Rate 3% a.) What is the net cost of the new machine? b.) What is the total incremental depreciation on the new versus the old machine? c.) What is the total annual benefit of the new machine? d.) What is the net present value of the new machine and should they purchase it, why or why not? The Homestretch Corporation has been using their current network system for 2 years and it originally cost $395,000. The system is being depreciated using the 3-year MACRS category. Homestretch can sell their current system for $90,000 and they are considering replacing this network with a newer network that costs $535,000. The new machine will save $82,000 each year for the next four years and is on the 3-year MACRS category as well. The Homestretch Corporation is in the 25% tax bracket and below you will find information that you can use to calculate their weighted average cost of capital. Answer the questions that follow (a,b,c&d) (40 points): Percent of Capital Structure Debt 35%) Preferred Stock 15% Common Stock 50% Additional Information $1,000 Bond - Term 5 years $1,000 Bond - Price $1,003 $1,000 Bond - Coupon Rate 5% Preferred Stock - Dividend $1.23 Preferred Stock - Price $27 01 STOCK Preferred Stock - Flotation Common Stock - Dividend $2.33 Common Stock - Price $35 Growth Rate 3% a.) What is the net cost of the new machine? b.) What is the total incremental depreciation on the new versus the old machine? c.) What is the total annual benefit of the new machine? d.) What is the net present value of the new machine and should they purchase it, why or why not