Use the following information to answers questions 17 to 26. (Long Answer/Essay – primarily Chapter 13 but includes concepts...

70.2K

Verified Solution

Question

Finance

Use the followinginformation to answers questions 17 to26. (LongAnswer/Essay – primarily Chapter 13 but includes concepts from manychapters) You are the CFO of Micro Spinoff Inc. The company has 3,000,000 sharesof common stock outstanding at a market price of $50 a share.Micro Spinoff just paidan annual dividend in the amount of $3.12 per share. The dividendgrowthrate is 5.8 percent annually. Micro Spinoff also has 70,000 bondsoutstanding with a face value of $1,000 per bond that are sellingat 115.372 percent of par. The bonds have a 12 percent coupon, payinterest semi-annually,and have 15 years to maturity. Finally, the firm has 400,000 sharesof preferred stock outstanding at a market price of $58.48 a share.Preferred stocks pay dividend of 6.67 percent on its par value of$75.00.
23. The firm is considering a three-yearexpansionproject (same operations as the existing projects of thefirm) that requires an initial investment in a machine of $200,000.The increase inNet Working Capital (NWC) at time 0 is $10,000 that will be reducedto normal levels at the end of the project at time 3. The machinehas a life of 4 years andwill be depreciated to 0 using straight-linemethod. The Earnings BeforeInterest, Taxes, Depreciation, and Amortization (EBITDA) inthe first year is $70,000 and this will grow at 6 percent a year.At the end of the project (year 3), the machine can be sold for$10,000. The firm’s tax rate is 21 percent.

1. what are the annual cash flow from operations in years1,2,3?

Answer & Explanation Solved by verified expert

3.6 Ratings (491 Votes)

Year123EBITDA700007420078652Less Depreciation 5000050000 See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Use the followinginformation to answers questions 17 to26. (LongAnswer/Essay – primarily Chapter 13 but includes concepts from manychapters) You are the CFO of Micro Spinoff Inc. The company has 3,000,000 sharesof common stock outstanding at a market price of $50 a share.Micro Spinoff just paidan annual dividend in the amount of $3.12 per share. The dividendgrowthrate is 5.8 percent annually. Micro Spinoff also has 70,000 bondsoutstanding with a face value of $1,000 per bond that are sellingat 115.372 percent of par. The bonds have a 12 percent coupon, payinterest semi-annually,and have 15 years to maturity. Finally, the firm has 400,000 sharesof preferred stock outstanding at a market price of $58.48 a share.Preferred stocks pay dividend of 6.67 percent on its par value of$75.00.23. The firm is considering a three-yearexpansionproject (same operations as the existing projects of thefirm) that requires an initial investment in a machine of $200,000.The increase inNet Working Capital (NWC) at time 0 is $10,000 that will be reducedto normal levels at the end of the project at time 3. The machinehas a life of 4 years andwill be depreciated to 0 using straight-linemethod. The Earnings BeforeInterest, Taxes, Depreciation, and Amortization (EBITDA) inthe first year is $70,000 and this will grow at 6 percent a year.At the end of the project (year 3), the machine can be sold for$10,000. The firm’s tax rate is 21 percent.1. what are the annual cash flow from operations in years1,2,3?