Fundamentals of Finance Essay Example | Topics and Well Written Essays - 2750 words

Fundamentals of Finance - Essay ExampleThe companys current use and platform was purchased 3 years ago for 10M. The firm depreciates the machine using MACRS over a 5 year date fromy period when the assets are replaced due to very high maintenance costs. The companys management estimates that after removal costs are taken into consideration, this platform can be inter flip-flop for 3.5M. The company can also buy a innovative high specification platform at a cost of 14M plus installation costs of 1M and still has an estimated life of 5 years. If they decide to go ahead with this purchase then the companys working capital needs will change accounts receivable will plus to 1.5M, accounts payable will also increase to 1M and inventory will increase to 2M.Swindon is expected to be able to sell the new, proposed machine at the end of the 5-year period for 4M while the put forward machine at the end of the same period is expected to generate 2.5M. All else equal, the company expects to recover their Net Working Capital Investment at the end of the same period. The companys tax income rate is at 40%. The existing machine is expected to net 3,500,000 each year for the bordering 5 years. Along with the C.F.O, the Operations Officer has also laid down the estimated cash flows of the company from the new drilling platform as follows 1) DEBT the company can raise an unlimited substance of debt by change 1,000 par value, 6.5% coupon interest rate, 10 year bonds on which annual interest payments will be made. To sell the issue, an average discount of 20 per bond needs to be given. There also is an associated flotation cost of 2% of par value. 2) PREFERRED STOCK the company can raise an unlimited amount of preferred stock under the following terms (a) the security has a par value of vitamin C/share, (b) the annual dividend rate is 6% of the par value, (c) the flotation cost is expected to be 4 per share. The preferred stock is expected to sell for 102 before cost co nsiderations.