this is the third time I've been asking for help, and the tutors didn't answer my question
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Computerized Business Systems (CBS) transforms manual accounting and inventory systems into computerized, more efficient, systems. Many of their customers describe the transition as an overnight evolution from the dark ages to the 21st century. Manual systems are far too cumbersome with respects to both time and inventory control. CBS's computerized inventory systems, for example, allow every item in inventory, no matter how small, to be tracked at all points throughout the production process. Replenishing stock becomes an automatic process because the CBS system alerts the manager when supplies reach a pre-programmed level. Vicky Pagel has been a financial analyst with CBS for over five years. Although she normally does not get involved with sales, her most recent assignment was to assist Jack Ingram, a new sales representative. Jack is in the process of trying to sell a CBS system to Corbin Mills, a firm that does not know how to determine accurately its weighted average cost of capital (WACC). Corbin Mills, therefore, cannot determine whether the net present value (NPV) of the CBS system is positive or negative. To calculate Corbin Mills' WACC, Vicky first needed to gather information on the firm's cost of raising funds from various sources. As she proceeded with the analysis, she learned that Corbin Mills could issue 20-year corporate bonds at a coupon rate of 9%. As a result of current interest rates, the bonds could be sold for $1,005 each. These bonds have floatation costs of $35 per bond, pay interest semi-annually, and have a par value of $1,000. A corporate tax rate of 40% applies. Corbin Mills can raise additional funds through either retained earnings or new issues of common stock. Their common stock is currently selling for $68.25 per share. The most recent dividend paid was in the amount of $2.25. Corbin's dividends have previously grown at a rate of 4%, but this growth rate is expected to jump to 10% the year after and continue at this rate to infinity. If the firm wanted to sell new shares of common stock, after underpricing and floatation costs, they could do so for $62.75 per share. A final source from which funds could be raised is via preferred stock. $100-par preferred stock can be issued at an 11% annual dividend rate. After floatation costs, the preferred stock would sell for $95.50 per share. The final set of information needed to calculate the WACC is the proportion of total funds that each asset class represents. This information is given in Table 1. In performing the NPV calculation, net after-tax cash flows must be known. These cash flows are given in Table 2. All variables such as improvements in efficiency, employee training costs, and salvage value are already incorporated in the cash flows. Computerized Business Systems (CBS) transforms manual accounting and inventory systems into computerized, more efficient, systems. Many of their customers describe the transition as an overnight evolution from the dark ages to the 21st century. Manual systems are far too cumbersome with respects to both time and inventory control. CBS's computerized inventory systems, for example, allow every item in inventory, no matter how small, to be tracked at all points throughout the production process. Replenishing stock becomes an automatic process because the CBS system alerts the manager when supplies reach a pre-programmed level. Vicky Pagel has been a financial analyst with CBS for over five years. Although she normally does not get involved with sales, her most recent assignment was to assist Jack Ingram, a new sales representative. Jack is in the process of trying to sell a CBS system to Corbin Mills, a firm that does not know how to determine accurately its weighted average cost of capital (WACC). Corbin Mills, therefore, cannot determine whether the net present value (NPV) of the CBS system is positive or negative. To calculate Corbin Mills' WACC, Vicky first needed to gather information on the firm's cost of raising funds from various sources. As she proceeded with the analysis, she learned that Corbin Mills could issue 20-year corporate bonds at a coupon rate of 9%. As a result of current interest rates, the bonds could be sold for $1,005 each. These bonds have floatation costs of $35 per bond, pay interest semi-annually, and have a par value of $1,000. A corporate tax rate of 40% applies. Corbin Mills can raise additional funds through either retained earnings or new issues of common stock. Their common stock is currently selling for $68.25 per share. The most recent dividend paid was in the amount of $2.25. Corbin's dividends have previously grown at a rate of 4%, but this growth rate is expected to jump to 10% the year after and continue at this rate to infinity. If the firm wanted to sell new shares of common stock, after underpricing and floatation costs, they could do so for $62.75 per share. A final source from which funds could be raised is via preferred stock. $100-par preferred stock can be issued at an 11% annual dividend rate. After floatation costs, the preferred stock would sell for $95.50 per share. The final set of information needed to calculate the WACC is the proportion of total funds that each asset class represents. This information is given in Table 1. In performing the NPV calculation, net after-tax cash flows must be known. These cash flows are given in Table 2. All variables such as improvements in efficiency, employee training costs, and salvage value are already incorporated in the cash flows.
Expert Answer:
Related Book For
Organizational Behavior
ISBN: 978-0273774815
8th Edition
Authors: Andrzej A. Huczynski, David A. Buchanan
Posted Date:
Students also viewed these law questions
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
The Crazy Eddie fraud may appear smaller and gentler than the massive billion-dollar frauds exposed in recent times, such as Bernie Madoffs Ponzi scheme, frauds in the subprime mortgage market, the...
-
Henries Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $137,320, including freight and installation. Henries estimated the new...
-
Find the values for a, b, c, and d as you follow these steps to complete the square for 15x2 + 21x. 15x2 + 21x 15(x2 + ax) 15(x2 + ax + b) - 15b 15(x2 + ax + b) - c 15(x + d)2 - c
-
Apple Inc. accumulates large amounts of excess cash throughout the year. It typically invests these funds in marketable securities until they are needed. The company's most recent financial...
-
An article at Mobilize.org reported that the median credit-card balance for undergraduate students was \(\$ 1770\) for those who carried a balance from month to month. A professor at a community...
-
National Express reports the following costs and expenses in June 2017 for its delivery service. Instructions Determine the total amount of (a) Delivery service (product) costs (b) Periodcosts....
-
What is the amount of foreign earned income excluded for George?
-
Polonium-210 decays to the ground state of Pb-206 by the emission of a 5.305-MeV -particle with a half-life of 138 days. What mass of Po-210 is required to produce 10 MW of thermal energy from its...
-
In the past, some governments have favored being selfsufficient and only import products that cannot be produced domestically. Do you believe that this is a sound economic policy? Explain.
-
Would the term investment be regarded as a microeconomic or a macroeconomic issue? Briefly explain.
-
A student writes the following: When the producer of a good lowers its price, the demand curve shifts rightward and the price goes back to the initial level. Briefly explain.
-
Once a market has reached its equilibrium price, it will never move away from it. Do you agree or disagree? Briefly explain.
-
Why is equilibrium in a competitive market considered to be efficient?
-
In the global enterprise, firms are insistent that their accounting information systems (AIS) and other key systems are available 100% of the time, and that these systems are the highest in...
-
l ask this second time correnct answer is 38,01 can we look pls Consider a non-conducting rod of length 8.8 m having a uniform charge density 4.5 nC/m. Find the electric potential at P, a...
-
One might naively think that a collection \(\left(X_{t}, t \in \mathbb{R}^{+} ight)\)of independent r.v's may be chosen "measurably," i.e., with the map \[\left(\mathbb{R}^{+} \times \Omega,...
-
(1) Let \(M\) be a positive continuous martingale such that \(M_{0}=x\). (i) Prove that if \(\lim _{t ightarrow \infty} M_{t}=0\), then \[\begin{equation*}\mathbb{P}\left(\sup M_{t}>a...
-
Consider the interval \([0,1]\) endowed with Lebesgue measure \(\lambda\) on the Borel \(\sigma\)-algebra \(\mathcal{B}\). Define \(\mathcal{F}_{t}=\sigma\{A: A \subset[0, t], A \in \mathcal{B}\}\)....
Study smarter with the SolutionInn App