Problem 1. Salvage Value.
Your firm purchased machinery with a 7-year MACRS life for $10 million. The project, however, will end after 5 years. If the equipment can be sold for $4.5 million at the completion of the project, and your firm's tax rate is 35 percent, what is the after-tax cash flow from the sale of the machinery?
Problem 2. Cash Dividends. The stock of Payout Corp. will go ex-dividend tomorrow. The dividend will be $0.50 per share, and there are 20,000 shares of stock outstanding. The market-value balance sheet for Payout is shown on the following table.
Assets Liabilities and Equity
Cash $100,000 Equity $1,000,000
Fixed assets 900,000
a. What price is Payout stock selling for today?
b. What price will it sell for tomorrow? Ignore taxes.