Question 20 1 pts Jake the Dog Inc. is investing in a new portable iguana killin

Question

Question 20 1 pts Jake the Dog Inc. is investing in a new portable iguana killing machine that will cost $200,000. The machine has a useful life of 6 years and falls into the 5-year property class for the depreciation purposes. The IRS MACRS schedule for the six years is: (1) 20%, (2) 32%, (3) 19.2%, (4) 11.52%, (5) 11.52%, (6) 5.76%. It will generate $50,000 per year of savings for Jake and can be sold for $50,000 at the end of the 6-year period. Jake's corporate tax rate is 34%. In addition, Jake has 2000 outstanding 9% annual coupon bonds with a $1000 par value, 20 years to maturity and a price of $1085. Jake also has 60,000 shares of common stock outstanding that is selling for $45 per share. This stock has a beta of 2.45 (its Jake! he is a risky dog-dude!!), the expected market return is 12% and the risk- free rate is 5%. Finally, Jake has 36,000 shares preferred stock outstanding that pays a 5.5% 1 | dividend and sells for $40 per share. What are the operating cash flows for the machine for years 1 through 6? $43,300, 53,760, 43.050, 38,430, 38,430, 34,380 $33,000 43,300, 33,330, 23,400, 23,400, 18,400 $41,332, 55,776,43,928,40964, 40,964, 36,560 $46,600, 54,760, 46,056, 40,833, 40,833, 36,917 None of the above

Explanation / Answer

The Operating cash flow of the company for 1 to 6 yrs is as follows

Year Cashflows saving after tax Tax saving on depreciation Total Savings 1 33000 13600 46600 2 33000 21760 54760 3 33000 13056 46056 4 33000 7833.6 40833.6 5 33000 7833.6 40833.6 6 33000 3916.8 36916.8

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