QUESTION 1 Dixon Corp’s preferred stock does not mature (it is a “perpetual preferred”). Each share of preferred stock pays a fixed dividend of $5.15 per year, and is currently selling for $62....

Dixon Corp’s preferred stock does not mature (it is a “perpetual preferred”).  Each share of preferred stock pays a fixed dividend of $5.15 per year, and is currently selling for $62.  Estimate Dixon’s marginal cost of preferred equity.  Dixon faces a marginal tax rate of 30%.

Check the information provided for Terra Corp.The project’s cash flow for the last year is expected to be:

Dixon Corp has 6% coupon bonds outstanding that have a remaining maturity of 12 years.  These bonds pay interest semiannually, and are currently selling for $1080 per $1000 face value.  If Dixon issues new debt, it plans to sell bonds with a maturity of 12 years.  Estimate Dixon's marginalpre-tax cost of debt.  Dixon faces a marginal tax rate of 30%.

Check the information provided for Terra Corp.The project’s operating cash flow (OCF) for all years except the last year is expected to be:

Check the information provided for Terra Corp.The rate of return or return on investment on this project is estimated to be:

Dixon Corp has 6% coupon bonds outstanding that have a remaining maturity of 12 years.  These bonds pay interest semiannually, and are currently selling for $1080 per $1000 face value.  If Dixon issues new debt, it plans to sell bonds with a maturity of 12 years.  Estimate Dixon's marginalpost-tax cost of debt.  Dixon faces a marginal tax rate of 30%.

You may want to work the other FOUR Dixon Corp problems before trying this one: If Dixon Corp plans to raise 25% of any new financing with debt, 15% with preferred equity, and 60% with common equity, estimate Dixon's weighted average cost of capital.  Dixon's marginal tax rate is 30%.

Dixon Corp has announced a per-share dividend of $5.25 for the year just ended.  The company’s earnings and dividends per share are expected to grow at a steady rate of 4.50% for the foreseeable future.  Each share of the company’s common stock is currently trading for $94.  Estimate Dixon’s marginal cost of common equity.  Dixon faces a marginal tax rate of 30%.

Check the information provided for Terra Corp.The net present value of the project is estimated to be:

Information for Terra Corp.
Terra Corp is considering the purchase of a machine that is expected to cost $180,000.  The machine will require an additional $40,000 to have it shipped, modified, and installed.  The purchase of this machine is expected to require additional working capital of $20,000 upfront, which will be liquidated when the machine is sold off.  Terra expects to use the machine for 4 years, and then sell it for $95,000.  The machine will be fully depreciated over the four years, at a constant rate.  In each of the four years, Terra’s revenues are expected to be $85,000 higher than they would be without the machine.  Annual operating costs (not including depreciation) will also be higher, however, to the extent of $19,000.  The firm pays a 30% rate in taxes, and its cost of capital is 7.5%.The initial outflow of cash for the proposed project is expected to be: