3. High Roller Properties is considering building a new casino at a cost of $10.5 million at t = 0. The after-tax cash flows the casino generates will depend on whether the state imposes a new income tax, and there is a 50-50 chance the tax will pass. If it passes, after-tax cash flows will be $1.875 million per year for the next 5 years. If it doesn't pass, the after-tax cash flows will be $3.75 million per year for the next 5 years. The project's WACC is 10.6%. If the tax is passed, the firm will have the option to abandon the project 1 year from now, in which case the property could be sold to net $6.7 million after tax at t = 1. What is the value (in thousands) of this abandonment option? Do not round intermediate calculations.

3. High Roller Properties is considering building a new casino at a cost of $10.5 million at t = 0. The after-tax cash flows the casino generates will depend on whether the state imposes a new income tax, and there is a 50-50 chance the tax will pass. If it passes, after-tax cash flows will be $1.875 million per year for the next 5 years. If it doesn't pass, the after-tax cash flows will be $3.75 million per year for the next 5 years. The project's WACC is 10.6%. If the tax is passed, the firm will have the option to abandon the project 1 year from now, in which case the property could be sold to net $6.7 million after tax at t = 1. What is the value (in thousands) of this abandonment option? Do not round intermediate calculations.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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CT Inc. is evaluating a project that would cost P8 million at t = 0. There is a 50% chance that the project would be highly successful and generate annual after-tax cash flows of P6 million during Years 1, 2, and 3. However, there is a 50% chance that it would be less successful and would generate only P1 million for each of the 3 years. If the project is highly successful, it would open the door for another investment of P10 million at the end of Year 2, and this new investment could be sold for P20 million at the end of Year 3. However, if the project is unsuccessful, the new P10 million investment at the end of Year 2 would only be sold for P5,000,000 at the end of Year 3. Assume a WACC of 12.0%. Listed below are the requirements for this data set: What is the project's expected NPV if the company would not take the growth option? (Round final answer to the nearest peso) What is the project's expected NPV after taking into account this growth option? (Round final answer to the…
martin development company is deciding whether to proceed with Project X. The cost would be $9 million in year 0, there is a 50% chance that X would be hugely successful and would generate a cash after tax flow of $6 million per year during years 1, 2 and three. however there is a 50% chance that X would be less successful and would generate only $1 million per year for the three years. If Project X is hugely successful it would open the door to another investment project why which would require an outlay of 10 million dollars at the end of year 2. project Y would then be sold to another company at a price of $20 million at the end of year 3 Martins weighted average cost of capital is 11%. A)if the company does not consider real options what is Project X expected NPV? b) What is X is expected NPV with the growth option? c)what is the value of the growth option?
Consider a project to produce solar water heaters. It requires a $10 million investment and offers a level after-tax cash flow of $1.64 million per year for 10 years. The opportunity cost of capital is 10.35%, which reflects the project's business risk. a. Suppose the project is financed with $4 million of debt and $6 million of equity. The interest rate is 6.55% and the marginal tax rate is 21%. An equal amount of the debt will be repaid in each year of the project's life. Calculate APV. Note: Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations. Round your answer to the nearest whole number. b. If the firm incurs issue costs of $650,000 to raise the $6 million of required equity, what will be the APV? Note: Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations. Round your answer to the nearest whole number. Negative amount should be indicated by a minus sign. a. Adjusted present value b. Adjusted present…
A firm is considering taking a project that will produce $12 million of revenue per year. Cash expenses will be $5 million, and depreciation expenses will be $1 million per year. If the firm takes that project, then it will reduce the cash revenues of an existing project by $3 million. What is the free cash flow on the project, per year, if the firm uses a 40 percent marginal tax rate? O$2.8 million O $2.4 million 0 $4.6 million $3.4 million
Garry Manufacturing Company is considering a three-year project that has a cost of $75,000. The project will generate after-tax cash flows of $33,100 in Year 1, $31,500 in Year 2, and $31,200 in Year 3. Assume that the firm's proper rate of discount is 10% and that the firm's tax rate is 40%. What is the project's payback and outline any limitations in using the payback period method in selecting acceptable projects?
(Net present value calculation) Dowling Sportswear is considering building a new factory to produce aluminum baseball bats. This project would require an initial cash outlay of $6,000,000 and would generate annual net cash inflows of $1,100,000 per year for 9 years. Calculate the project's NPV using a discount rate of 5 percent. If the discount rate is 5 percent, then the project's NPV is $___________________(Round to the nearest dollar.)
3.High Roller Properties is considering building a new casino at a costof $10 million at t = 0. The after-tax cash flows the casino generateswill depend on whether the state imposes a new income tax, and there isa 50-50 chance the tax will pass.If it passes, after-tax cash flowswill be $1.875 million per year for the next 5 years.If it doesn'tpass, the after-tax cash flows will be $3.75 million per year for thenext 5 years.The project's WACC is 11.0%.If the tax is passed, thefirm will have the option to abandon the project 1 year from now, inwhich case the property could be sold to net $6.5 million after tax att = 1.What is the value (in thousands) of this abandonment option?a. $202b. $224c. $249d. $277e.$308(Dollars in thousands)WACC11.0%Investment cost$10,000CFs, no tax$3,750CFs, with tax$1,875
Genesis Corporation want to purchase a piece of machinery for $150,000 that will cost $20,000 to have it delivered and installed. Based on past information, they believe they can sell the machinery for $25,000 in 5 years. The company’s marginal tax rate is 34%. If the applicable CCA rate is 20% and the required return on this project is 15%, what is the present value of the CCA tax shield?
Bensington Glass Co. is considering the expansion of it spandrel glass business line. They plan to convert an unused space of their warehouse into additional manufacturing space. They estimate the initial investment will be $7,450,000 and expect the new production to create additional cash flows of $2,925,000 in year's one through ten. If Bensington Glass uses a discount rate of 11%, what is the project's discounted payback period? 4.00 O 3.00 O 3.82 3.16
Consider a project to produce solar water heaters. It requires a $10 million investment and offers a level after-tax cash flow of $1.68 million per year for 10 years. The opportunity cost of capital is 11.15%, which reflects the project's business risk. a. Suppose the project is financed with $4 million of debt and $6 million of equity. The interest rate is 7.15% and the marginal tax rate is 21%. An equal amount of the debt will be repaid in each year of the project's life. Calculate APV. (Enter your answer in dollars, not millions of dollars. Do not round Intermediate calculations. Round your answer to the nearest whole number.) X Answer is complete but not entirely correct. Adjusted present value S 120,980 x b. If the firm Incurs issue costs of $610,000 to raise the $6 million of required equity, what will be the APV? (Enter your answer in dollars, not millions of dollars. Do not round Intermediate calculations. Round your answer to the nearest whole number. Negative amount shoud be…
The private firm TranspCom needs to invest $300 million to a freeway construction and management project on year 2, and $50 million less than previous year each year from year 3 through year 6. What is the present worth of all these potential investments? (Suppose the annual rate of return is 12%)
A L0IN33 builder company is deciding to undertake a pr0ject. The pr0ject is quite profitable as it will generate net cash inflows of $20 million per year for 5 years. However, it will cause pollution to the nearby residents. The company can mitigate this pollution by investing additional 10 million at Year 0 but legally it is n0t compulsory for it to do so. Undertaking this project would cost $60 million without mitigation. If the firm does invest in mitigati0n, the annual cash inflows would be $22 million. The risk adjusted WACC is 12%. Calculate the NPV and IRR with and without mitigation(IRR must) Should the project be undertaken? If so, should the firm do mitigation

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