Chapman Machine Shop is considering a 4-year project to improve its production efficiency.Buying a new machine press for $576,00
0 is estimated to result in $192,000 in annual pretax cost savings. The press falls in the MACRS 5-year class, and it will have a salvage value at the end of the project of $84,000. The press also requires an initial investment in spare parts inventory of $24,000, along with an additional $3,600 in inventory for each succeeding year of the project. The inventory will return to its original level when the project ends. The shop's tax rate is 35% and its discount rate is 11%. Should the firm buy and install the machine press? Assume that Chapman machine shop is expected to grow at a rate of 3% after year 4. If the value of debt is $150,000, and there are 50,000 shares outstanding, what is the price per share of Chapman’s common stock?
1 answer:
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Answer:
Answer for task 1: Increase
Answer for task 2: debt
Answer for task 3: -13.33
Answer for task 4: -14.00
Answer for task 5: reserve requirement
Explanation:
<u>Task 1:</u>
In the given question, the owner has borrowed $100 supplement to their existing reserves. Since the owner has borrowed, the value of debt would <u>increase</u>.
<u>Task 2:</u>
<u>Leverage ratio before borrowing:</u>
Leverage ratio =
Leverage ratio =
Leverage ratio = -13.33
The leverage ratio before borrowing is - 13.33
<u>Task 3:</u>
<u>Leverage ratio after borrowing:</u>
Leverage ratio =
Leverage ratio =
Leverage ratio = -14.00
The leverage ratio after borrowing is - 14.00
<u>Task 4:</u>
This would also bring the leverage ratio from its initial value of -13.33 to a new value of -14.00.
<u>Task 5:</u>
<u>Which of the following do bankers take into account when determining how to allocate their assets? Check all that apply.</u>
The option is<u> "b"</u>
When determining how to allocate their assets bankers take into account the reserve requirement.