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    Managerial Finance - Cooper Construction

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    23. Cooper Construction is considering purchasing new, technologically advanced equipment. The equipment will cost $625,000 with a salvage value of $50,000 at the end of its useful life of 10 years. The equipment is expected to generate additional annual cash inflows with the following probabilities for the next ten years:

    Probability Cash Flow
    .15 $ 60,000
    .25 85,000
    .45 110,000
    .15 130,000

    a) What is the expected cash flow?
    b) Cooper's cost of capital is 10%. What is the expected net present value?
    c) Should Cooper buy the equipment?

    24. In January, 1994, Harold Black bought 100 shares of Country homes for $37.50 per share. He sold them in January, 2004 for a total of $9,715.02. Calculate Harold's annual rate of return.

    25. Maxwell Electronics had net income of $15 million last year, and had 3 million common shares outstanding. They declared a 12% stock dividend. Calculate EPS before and after the stock dividend.

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    Solution Preview

    23. Cooper Construction is considering purchasing new, technologically advanced equipment. The equipment will cost $625,000 with a salvage value of $50,000 at the end of its useful life of 10 years. The equipment is expected to generate additional annual cash inflows with the following probabilities for the next ten years:

    Probability Cash Flow
    .15 $ 60,000
    .25 85,000
    .45 110,000
    .15 130,000

    a) What is the expected cash flow?

    .15 x 60,000 = 9,000
    .25 x 85,000 = 21,250
    .45 x ...

    Solution Summary

    This solution is comprised of a detailed explanation to answer the managerial finance questions.

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