Based on market values, Gubler's Gym has an equity multiplier of 1.52 times. Shareholders require a return of 11.15 percent on the company's stock and a pretax return of 4.90 percent on the company's debt. The company is evaluating a new project that has the same risk as the company itself. The project will generate annual aftertax cash flows of $289,000 per year for 9 years. The tax rate is 39 percent. What is the most the company would be willing to spend today on the project?
Based on market values, Gubler's Gym has an equity multiplier of 1.52 times. Shareholders require a return of 11.15 percent on the company's stock and a pretax return of 4.90 percent on the company's debt. The company is evaluating a new project that has the same risk as the company itself. The project will generate annual aftertax cash flows of $289,000 per year for 9 years. The tax rate is 39 percent. What is the most the company would be willing to spend today on the project?
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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Question
Based on market values, Gubler's Gym has an equity multiplier of 1.52 times. Shareholders require a return of 11.15 percent on the company's stock and a pretax return of 4.90 percent on the company's debt. The company is evaluating a new project that has the same risk as the company itself. The project will generate annual aftertax cash flows of $289,000 per year for 9 years. The tax rate is 39 percent. What is the most the company would be willing to spend today on the project?
Multiple Choice
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$1,731,793
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$1,778,775
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$1,626,236
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$2,050,380
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$1,682,313
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