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Cash dividends are demonstrated

1. Salvage Value.

Your firm purchased machinery with a 7-year MACRS life for $10 million. The project, however, will end after 5 years. If the equipment can be sold for $4.5 million at the completion of the project, and your firm's tax rate is 35 percent, what is the after-tax cash flow from the sale of the machinery?

2. Cash Dividends. The stock of Payout Corp. will go ex-dividend tomorrow. The dividend will be $0.50 per share, and there are 20,000 shares of stock outstanding. The market-value balance sheet for Payout is shown on the following table.

Assets Liabilities and Equity
Cash $100,000 Equity $1,000,000
Fixed assets 900,000

a. What price is Payout stock selling for today?

b. What price will it sell for tomorrow? Ignore taxes.

Solution Preview

Cash Dividends
1. Salvage Value. Your firm purchased machinery with a 7-year MACRS life for $10 million. The project, however, will end after 5 years. If the equipment can be sold for $4.5 million at the completion of the project, and your firm's tax rate is 35 percent, what is the after-tax cash flow from the sale of the machinery?

MACRS Table ...

Solution Summary

This solution is comprised of a detailed explanation to answer what price is Payout stock selling for today and what price will it sell for tomorrow.

$2.19