How should the acquisition of mpis be financed, taking into account the issues of control, flexibility, income and risk? cash flows from stock offering (in million dollars) proceeds from stock offering $ 125.025 annual dividend payments $ (7.50) every year forever pv of payouts $ (125.000) npv $ 0.025 notes: in case they finance with debt, winfield (the company) would be able to enjoy the tax shield as a result of tax deductible interest expense, hence their effective cost of debt will be 4.225%. however, when financed with stock, the new stockholders will be entitled to perpetuity of $7.5m in dividends. working out the net present values of the two scenarios as shown in the tables above, debt financing becomes a favorable option to stock since it yields a higher npv.

Which term refers to the cost that motivates an economic decision

The owner of firewood to go is considering buying a hydraulic wood splitter which sells for $50,000. he figures it will cost an additional $100 per cord to purchase and split wood with this machine, while he can sell each cord of split wood for $125. if, for this machine, design capacity is 50 cords per day, effective capacity is 40 cords per day, and actual output is expected to be 32 cords per day, what would be its efficiency?

The gilbert instrument corporation is considering replacing the wood steamer it currently uses to shape guitar sides. the steamer has 6 years of remaining life. if kept,the steamer will have depreciaiton expenses of $650 for five years and $325 for the sixthyear. its current book value is $3,575, and it can be sold on an internet auction site for$4,150 at this time. if the old steamer is not replaced, it can be sold for $800 at the endof its useful life. gilbert is considering purchasing the side steamer 3000, a higher-end steamer, whichcosts $12,000 and has an estimated useful life of 6 years with an estimated salvage value of$1,500. this steamer falls into the macrs 5-year class, so the applicable depreciationrates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. the new steamer is fasterand allows for an output expansion, so sales would rise by $2,000 per year; the newmachine's much greater efficiency would reduce operating expenses by $1,900 per year.to support the greater sales, the new machine would require that inventories increase by$2,900, but accounts payable would simultaneously increase by $700. gilbert's marginalfederal-plus-state tax rate is 40%, and its wacc is 15%.a. should it replace the old steamer? b. npv of replace = $2,083.51