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industrial type sewing machines

Please answer questions 26-29 based on the following information:

Zinger Corporation manufactures industrial type sewing machines. Zinger Corp. received a very large order from a few European countries. In order to be able to supply these countries with its products, Zinger will have to expand its facilities. Of the required expansion, Zinger feels it can raise $75 million internally, through retained earnings. The firm's optimum capital structure has been 45% debt, 10% preferred stock and 45% equity. The company will try to maintain this capital structure in financing this expansion plan. Currently Zinger's common stock is traded at a price of $20 per share. Last year's dividend was $1.50 per share. The growth rate is 8%. The company's preferred stock is selling at $50 and has been yielding 6% in the current market. Flotation costs have been estimated at 8% of common stock and 3% of preferred stock. Zinger Corp. has bonds outstanding at 10%, but its investment banker has informed the company that interest rates for bonds of equal risk are currently yielding 9%. Zinger's tax rate is 46%.
Ke =

a. 6.19%
b. 8.1% I have a b
c. 14.19%
d. 16.1%

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Question 27 (2.00 points)
Kn =

a. 14.19%
b. 16.1%
c. 16.8% and c here, but I do not know answer 28, 29
d. 26.85%

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Question 28 (2.00 points)
The weighted average cost of capital, using Ke, is:

a. 6.78%
b. 10.051%
c. 10.4%
d. 27.15%

Question 29 (2.00 points)
The firm can support a capital structure of with retained earnings financing.

a. $ 41.25 million
b. $136.36 million
c. $116.25 million
d. $166.67 million

Please answer questions 40-43 based on the following information:

The Taylor Corporation is using a machine that originally cost $88,000. The machine is being depreciated by the straight-line method over 8 years ($11,000 per year). The machine has a book value of $66,000 and a current market value of $40,000.

Jacqueline Elliott, the Chief Financial Officer of Taylor, is considering replacing this machine with a newer model costing $75,000. The new machine will save $7,000 in after-tax earnings each year for the next six years. The new machine is in the 5-year MACRS category. Taylor Corporation is in the 34% tax bracket and has a 10 percent cost of capital.

The cash inflows from the sale of the old machine are:

a. $40,000
b. $48,840 x answer
c. $51,160
d. $66,000

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Question 41 (2.00 points)
The net cost of the new machine is:

a. $26,160 x these is my answer
b. $35,000
c. $66,000
d. $75,000

I do no tknow following

Question 42 (2.00 points)
The incremental depreciation benefit of the purchase is:

a. $3,059
b. $12,156
c. $35,750
d. $10,540

Question 43 (2.00 points)
The net present value of the new machine is:

a. ($4522)
b. $7,744
c. $12,176
d. $38,336


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Solution Summary

Industrial type sewing machines are assessed.