Compute tates weighted average cost of capital

Assignment Help Financial Management

Reference no: EM132023210

Tate Company is considering a proposal to acquire new equipment for its manufacturing division. The equipment will cost $204,000, be useful for four years, and have a $15,000 salvage value.

Tate expects annual savings in cash operating expenses (before taxes) of $71,000. For tax purposes, the annual depreciation deduction will be $68,000, $91,400, $29,700, and $14,900, respectively, for the four years (the salvage value is ignored on the tax return). The income tax rate is 40%.

Tate establishes a cutoff rate for a net present value analysis at the company's weighted average cost of capital plus 1 percentage point.

Tate's capital is provided in the following proportions: debt, 60%; common stock, 20%; and retained earnings, 20%. The cost rates for these capital sources are debt, 10%; common stock, 12%; and retained earnings, 13%.

a. Compute Tate's (1) weighted average cost of capital and (2) cutoff rate. Round answers to one decimal place. For example, 0.4567 = 45.7%.

Reference no: EM132023210

Questions Cloud

Significant themes or events in the confession : What are some significant themes or events in The Confession, Augustine? And Why is the significance?

Adjustment of human behavior : Take a position about whether this problem is best solved through the use of technology or through the adjustment of human behavior

Philosopher by selecting a major societal problem : Contrast the positions of the scientist and the philosopher by selecting a major societal problem

Total attention to something living and real : How difficult do you find it to be to give your full and total attention to something living and real?

Compute tates weighted average cost of capital : Tate establishes a cutoff rate for a net present value analysis at the company's weighted average cost of capital plus 1 percentage point.

Conventional ethical relations : Analyze what ethical responsibilities, if any, you have to those you are in an indirect relationship with.

Contributions of scientists to society : Compare and contrast the contributions of artists to society with the contributions of scientists to society?

Convention expands the boundaries of the specified genre : Provide an example of a third convention from your chosen feature-length film and explain how this convention expands the boundaries of the specified genre.

What was the firms 2015 free cash flow : The Tall Tree Lumber Corporation's 2015 income statement shows an EBIT of $5,280,000, a tax rate of 35 percent, and a depreciation expense of $980,000.

User Account

All Pages