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CCA and UCC. Trinity Corp. purchased a private jet for $200,000 for the use of its senior managers. The jet falls in CCA Class 9, with a 25 percent rate. Calculate the annual capital cost allowance (CCA) and end-of-the-year book value (UCC) for this equipment for the first seven years.

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Irving Heathcote
Irving HeathcoteLv2
28 Sep 2019

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FITCO Inc. is a Pharmaceutical company which is considering investing in a new equipment for the production of pain-reliever machine for individuals who suffer from cardio vascular diseases. The new equipment will cost $2,000,000, and an additional $100,000 is needed for installation. The equipment which falls into the MACRS 5-yr class, would be sold after 5 years for $150,000. The equipment will generate additional annual revenues of $965,000, and will have annual operating expenses of $300,000. An inventory investment of $60,000 is required during the life of the project. FITCO is in the 30 percent tax bracket, and has the same risk as the firm's existing assets. Its existing cost of capital is 15 percent.

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Show all workings.

Dinklage Corp. has 6 million shares of common stock outstanding. The current share price is $85, and the book value per share is $8. The most recent annual dividend, paid this morning, was $5.70 and the dividend growth rate is 4 percent.

The company also has two bond issues outstanding. The first bond issue has a face value of $65 million, a coupon rate of 8%, a yield to maturity of 8.50%, and sells for 95 percent of par. The second issue has a face value of $40 million, a coupon rate of 9%, a yield to maturity of 7.07%, and sells for 108 percent of par. The first issue matures in 23 years, the second in 5 years.

The tax rate is 38 percent. Calculate the company’s WACC.

Start by calculating the capital structure weights.

Do not round intermediate calculations. Enter your answer as a decimal rounded to 4 decimal places, e.g., 0.1617.

Debt to Assets

%
Equity to Assets %

Next, calculate the cost of equity and cost of debt to get the WACC.

Do not round intermediate calculations (i.e. use more than four decimal places when using the capital structure weights above). Enter the following answers as a percent rounded to 2 decimal places, e.g., 32.16.

Cost of Equity

%
After-tax Cost of Debt %
WACC %

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