Antonio's is analyzing a project with an initial cost of $39,000 and cash inflows of $25,000 a year for 2 years. This project is an extension of the firm's current operations and thus is equally as risky as the current firm. The firm uses only debt and common stock to finance their operations and maintains a debt-equity ratio of 0.8. The pre-tax cost of debt is 7.8 percent and the cost of equity is 11.4 percent. The tax rate is 34 percent. What is the projected net present value of this project? Multiple Choice $3.435.10

Antonio's is analyzing a project with an initial cost of $39,000 and cash inflows of $25,000 a year for 2 years. This project is an extension of the firm's current operations and thus is equally as risky as the current firm. The firm uses only debt and common stock to finance their operations and maintains a debt-equity ratio of 0.8. The pre-tax cost of debt is 7.8 percent and the cost of equity is 11.4 percent. The tax rate is 34 percent. What is the projected net present value of this project? Multiple Choice $3.435.10

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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Olsen Outfitters Inc. believes that its optimal capital structure consists of 65% common equity and 35% debt, and its tax rate is 25%. Olsen must raise additional capital to fund its upcoming expansion. The firm will have $4 million of retained earnings with a cost of rs = 10%. New common stock in an amount up to $9 million would have a cost of re = 13.0%. Furthermore, Olsen can raise up to $3 million of debt at an interest rate of rd = 11% and an additional $6 million of debt at rd = 15%. The CFO estimates that a proposed expansion would require an investment of $7.4 million. What is the WACC for the last dollar raised તો
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Olsen Outfitters Inc. believes that its optimal capital structure consists of 55% common equity and 45% debt, and its tax rate is 25%. Olsen must raise additional capital to fund its upcoming expansion. The firm will have $2 million of retained earnings with a cost of rs = 13%. New common stock in an amount up to $9 million would have a cost of re = 15.5%. Furthermore, Olsen can raise up to $3 million of debt at an interest rate of rd = 11% and an additional $3 million of debt at rd = 12%. The CFO estimates that a proposed expansion would require an investment of $5.6 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places. %
Jenkins, Inc., has equity with a market value of $23.1 million and debt with a market value of $9.24 million. The cost of debt is 10 percent per year. Treasury bills that mature in one year yield 6 percent per year, and the expected return on the market portfolio over the next year is 11 percent. The beta of the company’s equity is 1.16. The firm pays no taxes. What is the cost of capital for an otherwise identical all-equity firm?
Commonwealth Construction (CC) needs $2 million of assets to get started, and it expects to have a basic earning power ratio of 15%. CC will own no securities, so all of its income will be operating income. If it so chooses, CC can finance up to 55% of its assets with debt, which will have an 11% interest rate. If it chooses to use debt, the firm will finance using only debt and common equity, so no preferred stock will be used. Assuming a 40% tax rate on all taxable income, what is the difference between CC's expected ROE if it finances these assets with 55% debt versus its expected ROE if it finances these assets entirely with common stock? Round your answer to two decimal places.
hi, this is my finance question. i need answer asap.
Cully Company needs to raise $23 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company has a target capital structure of 55 percent common stock, 10 percent preferred stock, and 35 percent debt. Flotation costs for issuing new common stock are 8 percent, for new preferred stock, 6 percent, and for new debt, 4 percent. What is the true initial cost figure Southern should use when evaluating its project? $23,589,744 $24,472,000 $24,572,650 $21,620,000 $25,555,556
Olsen Outfitters Inc. believes that its optimal capital structure consists of 65% common equity and 35% debt, and its tax rate is 25%. Olsen must raise additional capital to fund its upcoming expansion. The firm will have $1 million of retained earnings with a cost of rs = 10%. New common stock in an amount up to $10 million would have a cost of re = 12.0%. Furthermore, Olsen can raise up to $4 million of debt at an interest rate of rd = 10% and an additional $4 million of debt at rd = 13%. The CFO estimates that a proposed expansion would require an investment of $8.4 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places. %

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