BAM 313 Introduction to Financial Management Unit 3

BAM 313 Introduction to Financial Management Unit 3

BAM 313 Into to Financial Management Unit 3 (page 141)
Any references must be made from the following book:
BAM313 Foundations of Finance 8th Edition Arthur J. Keown, John D. Martin, J. William Petty Prentice Hall 2014 9780132994873
Writer Choice – Please answer ONE of the following:
1. Why is the search for new profitable projects so important? 
2. J.B. Corporation is considering the purchase of equipment that has an invoice price of $450,000. The equipment was recommended by a consulting firm that did an analysis for 
J.B. Corporation. J.B. paid the consulting firm $12,000 for its report. The cost of shipping and
installation is $50,000. The equipment will be depreciated on a straight-line basis over its
useful life of 10 years, assuming no salvage value. The equipment will replace existing assets
that have a current book value of $100,000 and which could be sold for $150,000. Additional
net working capital of $15,000 will be required to maintain the equipment and to support
higher sales. J.B.’s marginal tax rate is 40%. Calculate the initial outlay required to fund this
project.
3. Toto and Associates’ preferred stock is selling for $27.50 a share. The firm nets $25.60 after
issuance costs. The stock pays an annual dividend of $3.00 per share. What is the cost of 
existing, and new, preferred stock respectively?

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