AAA Inc. is evaluating a project that will require $500,000 in assets. The project is financed with equity only and is expected to generate earnings before interest and taxes of $90,000. The firm has a tax rate of 16%. What is the ROE (return on equit for this project? O a. 16.00% O b. 18.15% O c. O d. 10,75% 15.12%

AAA Inc. is evaluating a project that will require $500,000 in assets. The project is financed with equity only and is expected to generate earnings before interest and taxes of $90,000. The firm has a tax rate of 16%. What is the ROE (return on equit for this project? O a. 16.00% O b. 18.15% O c. O d. 10,75% 15.12%

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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You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of dollars) of its profits and of its future investments in new plant and working capital Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation Pretax profit Tax at 30% Investment Answer is complete but not entirely correct. Total value b. Laputa's equity $ 1 $ 81 21 60 18 10 3 Year 893 224 2 $ 101 31 70 21 13 3 16 35 种味道 $ 116 36 80 24 16 From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financed 40% by equity and 60 % by debt. Its cost of equity is 12%, its debt yields 8%, and it pays corporate tax at 30% $ 121 a. Estimate the company's total value Note: Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole amount. b. What is the value of Laputa's equity? Note: Do not round intermediate calculations. Enter your answer in millions rounded to the…
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You are a consultant to a large manufacturing corporation considering a project with the following net after-tax cash flows (in millions of dollars): Years from Now After-Tax CF 0 −$ 22 1 to 10 $ 10 The project's beta is 1.6. Assuming rf = 5% and E(rM) = 15% Required: a. What is the net present value of the project? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) b. What is the highest possible beta estimate for the project before its NPV becomes negative? (Do not round intermediate calculations. Round your answer to 3 decimal places.)
The Caffeine Coffee Company uses the modified internal rate of return. The firm has a cost of capital of 11 percent. The project being analyzed is as follows ($26.000 investment): Use Appendix A and Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year Cash Flow $ 12,000 11,000 9,000 What is the modified internal rate of return? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Internal rate of return 11.45%
6. Lucron Corp. is considering a project that will cost $310,000 and will generate after-tax cash flows of $96,000 per year for 5 years. The firm's WACC is 12% and its target D/E ratio is 2/3. The flotation cost for debt is 4% and the flotation cost for equity is 8%. What would be the new cost of the project after adjusting for flotation costs? A) $328,390 B$329,787 $331,197 D) $329,840 E) $290,160 7. When calculating weights for the WACC, it has become relatively common to use Net Debt. How is Net Debt calculated? A) Net Debt = Total amount of debt - Cash & Risk-Free Securities B) Net Debt = Total amount of debt + Cash & Risk-Free Securities C) Net Debt = Long-term Debt - Short-term Debt D) Net Debt Short-term Debt-Long-term Debt E) Net Debt- Long-term Debt-Short-term Debt + Cash & Risk-Free Securities Please use the following information to answer the next THREE questions. LNZ Corp. is thinking about leasing equipment to make tinted lenses. This equipment would cost $3,400,000 if…
A project requires an initial investment of $100,000 and is expected to produce a cash inflow before tax of $27, 300 per year for five years. Company A has substantial accumulated tax losses and is unlikely to pay taxes in the foreseeable future. Company B pays corporate taxes at a rate of 21% and can claim a 100% bonus depreciation immediately on the investment. Suppose the opportunity cost of capital is 10%. Ignore inflation. Calculate the project NPV for each company. What is the IRR of the after-tax cash flows for each company?
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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…
Finnegan Company plans to Invest In a new operating plant that Is expected to cost $500,000. The projected Incremental Income from the Investment Is as follows: Net Income Year After Tax 1 $30,000 $45,000 $50,000 $55,000 $40,000 $20,000 The unadjusted rate of return on the Inltial Investment would be approximately. Multiple Choice 80% 6.0%. 16.7% 48.0%
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