Fuzzytronic, Inc

1) In the case it is given that the firm operates in its optimal capital structure. Therefore, the

optimal capital structure is;

Percentage of debt = 55000 / 1055000 = % 5.21

Percentage of equity = 1000000 / 1055000 = % 94.79

WACC = [pic]

2) For 1993 = 150000× 1,00 = 150000

For 1994 = 150000× 1,25 = 187500

For 1995 = 150000× 1,50 = 225000

For 1996 = 150000× 1,57 = 235500

3) If the firm wants to maintain its current optimal capital structure, then it should finance its dividend payments without using additional debt or equity which means dividends should be paid via its “net income”. So we check if dividend payments exceed net income or not.

| |Net income | |Dividend Payment |

|For 1993 |201000 |> |150000 | |

|For 1994 |213000 |> |187500 | |

|For 1995 |222000 |< |225000 | |

|For 1996 |238000 |> |235500 | |

As seen above the company cannot be able to pay its dividend at 1995 from its net income.

4) -

5)

| |IRR % | |WACC % | |

|Automotive transmission software project |16 |> |13 |Accept |

|Office automation project |12 |< |13 |Reject |

|New marketing plan |13,5 |> |13 |Accept |

|Acquisition of material supplier |10 |< |15 |Reject |

|Laboratory expansion |13 |= |13 |Accept |

|New release of current software product |11 |< |13 |Reject |

6) [pic]

7) A)

175000×0,9479 = 165882,5 will be financed from...