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Ten Financial Management Questions - Essay Example

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Summary
This paper of articulated mathematics in illustration of the questions of Financial Management shows how the basic nature of transactions are ensured to yield maximum benefit for investors in the company.
Question 1: In January, 1950 Billy Bob bought 100 shares of stock in Ben's Barbeque, Inc…
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Ten Financial Management Questions
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Download file to see previous pages Add bracketed tax @ 34% $119,000
Add the cost of capital $ 35,000
Total $504,000
Less depreciation of the old helicopter $54,000
So the net cost of the new helicopter $450,000
Question 4: Mud Construction Co. is considering buying a new equipment with cost of $625,000 and a salvage value of $50,00 at the end of its useful life of ten years. The equipment is expected to generate additional annual cash flow for ten years with the following possibilities.
Probability
Cash Flow
15
$60,000
25
$85,000
45
$110,000
15
$130,000
a. What is the expected cash flow
b. If the company's cost capital is 10% what is the expected net present value
c. Should the company buy the equipment
a. The cost of the equipment is $625,000
10 years post installation salvage value $50,000
With probability 15, cash flow $60,000
The inflow of income 60,000x10=$600,000
b. Salvage value after 10 years $600,000
Hence the present value 600,000/10=$60,000
c. The cash flow shows that the company gets a marginal profit, therefore it is not advisable to buy the equipment.
Question 5: Explain how the price of a new security is determined
Security is the condition of being protected against danger or loss. In the general sense, security is a concept similar to safety. The nuance between the two is an added emphasis on being protected from dangers that originate from outside. Individuals or actions that encroach upon the condition of protection are responsible for the breach of security. A security is a fungible, negotiable interest representing financial value. Securities are broadly categorized into debt and equity...
What is the approximate yield to maturity of the bonds
Question 3: Bar T Ranches Inc, is considering buying a helicopter for $350,000. The company's old helicopter has a book value of $85,000, but will only bring $60,000 if it is sold. The old helicopter can be depreciated at the rate of $13,500 per year for next four years. The new helicopter can be depreciated using the five-year MARCS schedule. The new helicopter is expected to save $62,000 after the taxes through reduced fuel and maintenance expenses. Bar T Ranches is in the 34% tax bracket and 12% cost of capital.
Question 4: Mud Construction Co. is considering buying a new equipment with cost of $625,000 and a salvage value of $50,00 at the end of its useful life of ten years. The equipment is expected to generate additional annual cash flow for ten years with the following possibilities.
Security is the condition of being protected against danger or loss. In the general sense, security is a concept similar to safety. The nuance between the two is an added emphasis on being protected from dangers that originate from outside. Individuals or actions that encroach upon the condition of protection are responsible for the breach of security. A security is a fungible, negotiable interest representing financial value. Securities are broadly categorized into debt and equity securities. ...Download file to see next pagesRead More
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