A firm is considering a project that will generate perpetual after - tax cash flows of $16,500 per year beginning next year. The project has the same risk as the firm's overall operations and must be financed externally. Equity flotation costs 14 percent and debt issues cost 3 percent on an after-tax basis. The firm's D/E ratio is 0.5. What is the most the firm can pay for the project and still earn its required return?
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- A firm is considering a project that will generate perpetual after-tax cash flows of $16,500 per year beginning next year. The project has the same risk as the firm's overall operations and must be financed externally. Equity flotation costs 14 percent and debt issues cost 3 percent on an after-tax basis. The firm's D/E ratio is 0.5. What is the most the firm can pay for the project and still earn its required return? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar. Maximum the firm can payABC Inc is considering a project that will generate perpetual cash flows of $15,000 per year beginning next year. The project has the same risk as the firm's overall operations and must be financed externally. Equity costs 14% and debt costs 4% on an after-tax basis. The firm's D/E ratio is 0.8. What is the most ABC Inc can pay for the project and still earn its required return? (Note that the choices are rounded to thousands) Select one: a. $138,000 b. $157,000 c. $164,000 ○ d. $182,000 e. $199,000Alpha Industries is considering a project with an initial cost of $8 million. The project will produce cash inflows of $1.49 million per year for 8 years. The project has the same risk as the firm. The firm has a pretax cost of debt of 5.61 percent and a cost of equity of 11.27 percent. The debt-equity ratio is .60 and the tax rate is 21 percent. What is the net present value of the project?
- Consider a hypothetical economy that has NO tax.ABC Ltd. is considering investing in a 2-year project which is expected to generate the followingyear-end cash flows: C1 = $110 million, C2 = $115 million. The yearly discount rate for the projectis 10%. The initial cost of the project is $200 million.(a) Compute the profit and NPV of the project. (b) Based on the answer of part (a), should the project be accepted? Explain.(c) ABC’s cut-off period is 2 years. Compute the PI and Payback of the project. Based on thesetwo methods, should ABC accept the project?(d) Write down the numerical formula for computing the IRR of this project. What is theminimum IRR value that would make this project acceptable? Explain. (e) Given the recommendations based on the four decision rules above, which project shouldABC Ltd. accept? (f) Now suppose that of the $200m initial expenditure, $50m was used for the purchase of amachine that has an estimated economic life of four years. The machine will be…Consider a firm whose only asset is a plot of vacant land, and whose only liability is debt of $15.2 million due in one year. If left vacant, the land will be worth $10.2 million in one year. Alternatively, the firm can develop the land at an up-front cost of $19.6 million. The developed the land will be worth $35.9 million in one year. Suppose the risk-free interest rate is 9.7%, assume all cash flows are risk-free, and there are no taxes. a. If the firm chooses not to develop the land, what is the value of the firm's equity today? What is the value of the debt today? b. What is the NPV of developing the land? c. Suppose the firm raises $19.6 million from the equity holders to develop the land. If the firm develops the land, what is the value of the firm's equity today? What is the value of the firm's debt today? d. Given your answer to part (c), would equity holders be willing to provide the $19.6 million needed to develop the land? a. If the firm chooses not to develop the land,…A project costs $334 at t = 0 and generates unlevered after - tax cash flows of $51 per year forever. The project's unlevered cost of capital is 9.1%. The initial cost of the project is paid for with a combination of debt and equity. Debt contributes $72 and will earn interest at 5.4% forever. (The debt is perpetual, it never matures. Assume the debt tax shield cash flows have the same risk profile as the debt cash flows. The debt is fairly priced. All of the project NPV accrues to the equity holders.) The tax rate is 27%. What is the WACC of the levered project? Give your answer in percentage to the nearest 0.1%.
- Alpha Industries is considering a project with an initial cost of $8.4 million. The project will produce cash inflows of $1.56 million per year for 8 years. The project has the same risk as the firm. The firm has a pretax cost of debt of 5.49 percent and a cost of equity of 11.19 percent. The debt - equity ratio is .56 and the tax rate is 23 percent. What is the net present value of the project?A company is considering investing in a new project that requires an initial investment of $1,000,000. The projected cash flows from the project are as follows: Year 1: $300,000 Year 2: $400,000 Year 3: $500,000 Year 4: $600,000 The company's required rate of return for similar projects is 12%. What is the Net Present Value (NPV) of the project? What is the Internal Rate of Return (IRR) of the project? YOU MUST SHOW CALCULATIONS TO BACK UP YOUR SELECTION. -$100,000// 12% $250,000 // 10% $250,000 // 14% $350,000 // 14% $50,000 // %14Diana, Industries is considering a project which has the following cash flows: Year Cash Flow 0 ? 1 $4,000 2 4,000 3 3,000 4 1,500 The project has a payback period of 2.5 years. The firm’s cost of capital is 12 percent. What is the project’s net present value (NPV)? What does the NPV rule advice regarding this investment opportunity?
- You are considering an investment in a clothes distributer. The company needs $105,000 today and expects to repay you $120,000 in a year from now. What is the IRR of this investment opportunity? Given the riskiness of the investment opportunity, your cost of capital is 17%. What does the IRR rule say about whether you should invest? What is the IRR of this investment oppurtunity? The IRR of this investment opppurtunity is ____%Jensen Shipping is considering a project that has an initial cost of $218,000. The project will produce aftertax cash flows of $49,000 a year forever. The firm's WACC is 15.8 percent and its tax rate is 34 percent. Equity has a flotation cost of 14.0 percent while the flotation cost for debt is 2.0 percent. What is the net present value of this project, including the flotation costs, if the firm's debt-equity ratio is .5? (Rounded) Multiple Choice $62,501 $53,088 $47,088 $67,904Celestial Crane Cosmetics is analyzing a project that requires an initial investment of $3,225,000. The project's expected cash flows are: Year Cash Flow Year 1 $375,000 Year 2 -125,000 Year 3 500,000 Year 4 400,000 If the company's WACC is 8% and the project has the same risk as the firm's average project, what is the project's modified internal rate of return (MIRR)? Should you accept or reject this project?