14antseBookPrintReferencesTriad Corporation has established a joint venture with Tobacco Road Construction, Inc.,to build a toll road in North Carolina. The initial investment in paving equipment is $145million. The equipment will be fully depreciated using the straight-line method over itseconomic life of five years. Earnings before interest, taxes, and depreciation collectedfrom the toll road are projected to be $21.7 million per annum for 20 years starting fromthe end of the first year. The corporate tax rate is 25 percent. The required rate of returnfor the project under all-equity financing is 14 percent. The pretax cost of debt for thejoint partnership is 8.3 percent. To encourage investment in the country's Infrastructure,the U.S. government will subsidize the project with a $65 million, 15-year loan at aninterest rate of 4.8 percent per year. All principal will be repaid in one balloon payment atthe end of Year 15.What is the adjusted present value of this project? (Do not round intermediatecalculations and enter your answer in dollars, not millions of dollars, rounded to 2decimal places, e.g., 1,234,567.89)Adjusted present value

Step 1: Determine the Earnings after tax . Earnings after tax is Earnings before Interest Taxes and…

Answered: 14 ants eBook Print References Triad…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

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Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 26P

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A company has established a joint venture with another company to build a toll road. The initial investment is paving equipment is 34 million. the equipment will be fully depreciated using the straight-line method over its economic life of five years. Earnings before interest, taxes and depreciation collected from the toll road are projected to be 4 million per annum for 27 years starting from the end of the first year. The corporate tax rate is 20%. The required rate of return for the project under all-equity financing is 15%. The pretax cost of debt for the joint partnership is 6%. To encourage investment in the country's infrastructure, the government will subsidize the project with an 13 million, 15-year loan at an interest rate of 5% per year. All principal will be repaid in one balloon payment at the end of year 15. The NPV of the project (rounded to a whole number) is: BY
Striped Potato is evaluating a project that would require the purchase of a piece of equipment for $365,000 today. During year 1, the project is expected to have relevant revenue of $216,000, relevant costs of $57,000, and relevant depreciation of $84,000. Striped Potato would need to borrow $365,000 today to pay for the equipment and would need to make an interest payment of $14,000 to the bank in 1 year. Relevant net income for the project in year 1 is expected to be $44,000. What is the tax rate expected to be in year 1?
XYZ is evaluating a project that would require the purchase of a piece of equipment for $440,000 today. During year 1, the project is expected to have relevant revenue of $786,000, relevant costs of $201,000, and relevant depreciation of $132,000. XYZ would need to borrow $440,000 today to pay for the equipment and would need to make an interest payment of $33,000 to the bank in 1 year. Relevant net income for the project in year 1 is expected to be $337,000. What is the tax rate expected to be in year 1? A rate equal to or greater than 21.96% but less than 26.61% A rate less than 21.96% or a rate greater than 46.34% A rate equal to or greater than 31.02% but less than 38.39% A rate equal to or greater than 38.39% but less than 46.34% A rate equal to or greater than 26.61% but less than 31.02%
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Sawtooth Machinery is considering a 4-year project to manufacture a new line of chainsaws. The project requires an investment of $760,000 and will generate $380,000 per year in earnings before interest, taxes, and depreciation (EBITDA) for the next four years. The investment will be depreciated straight line to zero over four years. The project will require an investment in net working capital equal to 2% of EBITDA in each of years 1-4. Following year 4, the company expects free cash flows to grow at a constant 3% per year. The tax rate is 35% and the cost of levered equity is 13%. Sawtooth will borrow 40% of the project value at 6%. Debt will be paid down as shown in the table below: Year Debt outstanding 0 304,000 1 228,000 2 152,000 3 4 76,000 0 a) What are the unlevered cash flows in years 0 through year 4?
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