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Q1 Kirkevue Industries pays out all its earnings...




Q1 Kirkevue Industries pays out all its earnings as dividends and has a share price of $24. In order to expand, Kirkevue announces it will cut its dividend payments from $2.00 to $1.80 per share and reinvest the retained funds. What is the growth rate that should be achieved on the reinvested funds to keep the equity cost of capital unchanged? Q2 Cameron Industries is purchasing a new chemical vapour depositor in order to make silicon chips. It will cost $6 million to buy the machine and $10,000 to have it delivered and installed. Building a clean room in the plant for the machine will cost an additional $3 million. The machine is expected to raise gross profits by $4 million per year, starting at the end of the first year, with associated costs of $1 million for each of those years. The machine is expected to have a working life of six years and will be depreciated over those six years. The corporate tax rate is 30%. What are the incremental free cash flows associated with the new machine in year 1?


Paper#5660 | Written in 18-Jul-2015

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