Corporation is selling an ipo of stock

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Reference no: EM132039597

1. ABC Corporation is selling an IPO of stock. They expect to pay the new shares equivalent of $4 dividend per share and expect the stock to be priced at $50 in three years. The market required rate of return is estimated to be 20%. What is value of the stock today?

A. $24.64

B. $37.36

C. $45.72

D. $50.00

2. The Webmatics has approved a project for 5 years ago and the project still has 15 years of remaining life today. If the old equipment is replaced with the new equipment, the operating expenses will decrease by $3 million, since the new equipment is energy-efficient. The old equipment was purchased 5 years ago at a cost of $38 million and was assumed to have no value at the end of its 20 year life. The old equipment can be sold for $12 million today. The new equipment is $32 million and was assumed to have no value at the end of the project. The firm uses straight line depreciation. The marginal tax rate is 25%. If the firm replaces the old equipment now, free cash flow for next year will

A) increase by $2.13 million

B) decrease by $2.40 million

C) Increase by $2.49 million

D) decrease by $2.22 million

E) increase by $2.31 million

Reference no: EM132039597

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