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ed Assume Stratton Health Clubs, Inc., has $3 million in assets. If it goes with a low liquidity plan for the assets, it can earn a return of 20 percent, but with a high liquidity plan, the return will be 13 percent. If the firm goes with a short-term financing plan, the financing costs on the $3 million will be 10 percent; with a long term financing plan, the financing costs on the $3 million will be 12 percent. (Review Table 6-11 for parts a, b, and c of this problem.) a. Compute the anticipated return after financing costs on the most aggressive asset-financing mix. (Enter answers in whole dollar, not in million.) Anticipated return $ 1300,000| @ b. Compute the anticipated return after financing costs on the most conservative asset-financing mix. (Enter answers in whole dollar, not in million.) Anticipated return $ /30,000 & c. Compute the anticipated return after financing costs on the two moderate approaches to the asset-financing mix. (Enter answers in whole dollar, not in million.) Anticipated return Low liquidity $ (] High liquidity $ (/] d. This part of the question is not part of your Connect assignment.
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Administrative costs
0.45%
Cost of debt
7.00%
Cost of equity
5.00%
Probability of loss
0.55%
Fees paid by the borrower
1.00%
Calculate the weighted average cost of debt for this funding request.
(Enter your answer in percentage. Round your answer to 2 decimal places)
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Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.
Weighted average cost of capital
%
b. Which project(s) should be accepted?
Piece of equipment
New machine
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b. Which project(s) should be accepted?
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Balance Sheets
Total Assets
$5,000,000
Debt
$0
Common stock (=equity)
$5,000,000
Total liabilities & equity
$5,000,000
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a. What is the NPV of Kohwe's investment?
The NPV of Kohwe's investment is $
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The
Kohwe
finances
stment with equity
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1. (a)
1. (b)
2.
1 Choose Denominator:
1
1
1
If Montclair borrows the funds, does its financing structure become more or less risky?
Choose Numerator:
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Year
A
B
1
$
270
$
170
2
140
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3
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170
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Investment B: %
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Item
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Item
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100% equity financing
30% debt financing with a 8% interest rate
60% debt financing with a 8% interest rate
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1
2
3
Net income
$
$
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2
3
Return on equity
%
%
%
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1
2
3
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%
%
%
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