Benton is a rental car company that is trying to determine whether to add 25 cars to itsfleet. The company fully depreciates all its rental cars over six years using the straight-line method. The new cars are expected to generate $195,000 per year in earningsbefore taxes and depreciation for six years. The company is entirely financed by equityand has a 23 percent tax rate. The required return on the company's unlevered equity is12 percent and the new fleet will not change the risk of the company. The risk-free rate is5 percent.a. What is the maximum price that the company should be willing to pay for the newfleet of cars if it remains an all-equity company? (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g., 32.16.)b. Suppose the company can purchase the fleet of cars for $700,000. Additionally,assume the company can issue $520,000 of six-year debt to finance the project atthe risk-free rate of 5 percent. All principal will be repaid in one balloon payment atthe end of the sixth year. What is the APV of the project? (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g., 32.16.)a.Maximum priceb. APV

Concept. APV. ( Adjusted present value.) It is net present value of the project if it were funded…

Answered: Benton is a rental car company that is…

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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Quick Computing installed its previous generation of computer chip manufacturing equipment 3 years ago. Some of that older equipment will become unnecessary when the company goes into production of its new product. The obsolete equipment, which originally cost $37.00 million, has been depreciated straight-line over an assumed tax life of 5 years, but it can be sold now for $17.40 million. The firm’s tax rate is 30%. What is the after-tax cash flow from the sale of the equipment? (Enter your answer in millions rounded to 1 decimal place.) After-tax cash flow
NEED BOTH PARTS... Zoso is a rental car company that is trying to determine whether to add 25 cars to its fleet. The company fully depreciates all its rental cars over five years using the straight-line method. The new cars are expected to generate $135,000 per year in earnings before taxes and depreciation for five years. The company is entirely financed by equity and has a 35 percent tax rate. The required return on the company’s unlevered equity is 14 percent, and the new fleet will not change the risk of the company. a. What is the maximum price that the company should be willing to pay for the new fleet of cars if it remains an all-equity company? b. Suppose the company can purchase the fleet of cars for $305,000. Additionally, assume the company can issue $195,000 of five-year, 7 percent debt to finance the project. All principal will be repaid in one balloon payment at the end of the fifth year. What is the APV of the project?
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The profit - maximizing manager of Big Farms wants to purchase a large piece of farm equipment. The manager has two financing options from two different banks. Big Bank will allow the manager to make five equal payments of $22,000 at the end of each of the next five years. Best Bank will allow the manager to make a payment of $10,000 at the end of the next four years and then make a balloon payment of $72,000 at the end of the fifth year. If the interest rate is 4 percent, which of the following statements is true? OA. The present value of the two payment plans is exactly the same, so the manager of Big Farms is indifferent between the two payment plans. OB. The manager of Big Farms should select Big Bank's offer as the present value of the payment plan is $97,939.60, which is lower than the payment plan offered by Best Bank. OC. The manager of Big Farms should select Big Bank's offer because the total repayment less than the total repayment at Best Bank. D. The manager of Big Farms…
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