Please correct answer and don't use hand rating Blue Angel, Incorporated, a private firm in the holiday gift industry, is considering a newproject. The company currently has a target debt-equity ratio of .35, but the industrytarget debt-equity ratio is .30. The industry average beta is 1.20. The market riskpremium is 6.3 percent and the risk-free rate is 4.5 percent. Assume all companies in thisindustry can issue debt at the risk-free rate. The corporate tax rate is 23 percent. Theproject requires an initial outlay of $875,000 and is expected to result in a $111,000 cashinflow at the end of the first year. The project will be financed at the company's targetdebt-equity ratio. Annual cash flows from the project will grow at a constant rate of 6percent until the end of the fifth year and remain constant forever thereafter. What is theNPV of the project? (Do not round intermediate calculations and round your answer to2 decimal places, e.g., 32.16.)NPV

To determine the NPV of the project, we first calculated the project's Weighted Average Cost of…

Answered: Blue Angel, Incorporated, a private…

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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Blue Angel, Inc., a private firm in the holiday gift industry, is considering a new project. The company currently has a target debt-equity ratio of .45, but the industry target debt- equity ratio is .50. The industry average beta is 1.10. The market risk premium is 6.9 percent and the risk-free rate is 4.5 percent. Assume all companies in this industry can issue debt at the risk-free rate. The corporate tax rate is 23 percent. The project requires an initial outlay of $825,000 and is expected to result in a $101,000 cash inflow at the end of the first year. The project will be financed at the company's target debt-equity ratio. Annual cash flows from the project will grow at a constant rate of 5 percent until the end of the fifth year and remain constant forever thereafter. Calculate the NPV of the project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV
Blue Cod, Inc., a private firm in the holiday gift industry, is considering a new project. The company currently has a target debt-equity ratio of .35, but the industry target debt-equity ratio is .30. The industry average beta is 1.50. The market risk premium is 8 percent, and the risk-free rate is 6 percent. Assume all companies in this industry can issue debt at the risk-free rate. The corporate tax rate is 40 percent. The project requires an initial outlay of $690,000 and is expected to result in an after-tax EBIT of $110,000 at the end of the first year. The project will be financed at the company's target debt-equity ratio. Annual cash flows from the project will grow at a constant rate of 7 percent until the end of the fifth year and remain constant forever thereafter. What is the NPV of this project? (Keep at least 3 decimal places in intermediate steps. Choose an answer that is closest to yours) $263,770.1 $211,264.8 $291,028.5 $237,186.1
Hallmark, the greeting card company, is considering going online. It is anticipated that it will cost the firm RM 1 billion to do so and that the firm will be able to use its current debt capacity to borrow 20% of this investment, at an after-tax cost of 4.5%. Hallmark has a beta of 1.1. Online retailers have a beta of 1.50 and do not carry debt. If the riskless rate is 6% and the market risk premium is 5.5% estimate the cost of capital for the online investment.
Man.9
(Use the following information for the next three questions). Consider a world with taxes but no other market imperfections. BLT machinery has a debt to equity ratio of 2/3. Its cost of equity is 20%, cost of debt is 4%, and tax rate is 35%. Assume that the risk-free rate is 4%, and market risk premium is 8%. Suppose the firm repurchases stock and finances the repurchase with debt, causing its debt to equity ratio to change to 3/2. What is the firm's new cost of equity? None of the choices New cost of equity is 26.05% New cost of equity is 23.59% New cost of equity is 16.32% New cost of equity is 28.00%
Hw.16. Blue Angel, Inc., a private firm in the holiday gift industry, is considering a new project. The company currently has a target debt–equity ratio of .45, but the industry target debt–equity ratio is .40. The industry average beta is 1.30. The market risk premium is 8 percent, and the risk-free rate is 6 percent. Assume all companies in this industry can issue debt at the risk-free rate. The corporate tax rate is 35 percent. The project requires an initial outlay of $676,000 and is expected to result in a $96,000 cash inflow at the end of the first year. The project will be financed at the company’s target debt–equity ratio. Annual cash flows from the project will grow at a constant rate of 6 percent until the end of the fifth year and remain constant forever thereafter. Calculate the NPV of the project.
not use ai please
Your firm has a target debt ratio of 30%. Cost of debt (Rb) is 6%. The risk-free rate is 3% and the expected market risk premium is 6%. Your firm's unlevered (asset) beta is 1. What is the appropriate rate to discount the interest tax shields associated with your debt? Only typed answer
ACB Inc. is examining its capital structure with the intent of arriving at an optimal debt ratio. It currently has no debt and has a beta of 1.4. T-Bond rate is 7.5%. Your research indicates that the debt rating will be as follows at different debt levels: Your research indicates that the debt rating will be as follows at different debt levels: D/(D+E) Rating Interest rate 0% AAA 9.5% 10% AA 10% 20% 10.5% 30% BBB 11.5% 40% 12.5% 50% 13.5% 60% 15% 70% CC 18% 80% 20% 90% D 25% The firm currently has 2 million shares outstanding at $20 per share, and the tax rate is 35%. Assume an equity market risk premium of 6%. What is the firm's optimal debt ratio?
Your client wishes for you to evaluate the current structure of Homestarter Ltd. (a small investment company) in an aim to identify the current returns required for the company. This company has the following balance sheet and details: (picture) Notes: The company’s bank has advised that the interest rate on any new debt finance provided for the projects would be 7% p.a. if the debt issue is of similar risk and of the same time to maturity and coupon rate. There are currently 150,000 preference shares on issue, which pay a dividend of $1.30 per year. The preference shares currently sell for $8.20. The company’s existing 600,000 ordinary shares currently sell for $2.85 each. You have identified that Homestarter has recently paid a $0.28 dividend. Historically, dividends have increased at an annual rate of 3% p.a. and are expected to continue to do so in the future. The company’s tax rate is 25%. Your client wishes to understand, with the use of workings, the following aspects of…
Gronseth Drywall Systems, Inc., is in discussions with its investment bankers regarding the issuance of new bonds. The investment banker has informed the firm that different maturities will carry different coupon rates and sell at different prices. The firm must choose among several alternatives. In each case, the bonds will have a $1,000 par value and flotation costs will be $30 per bond. Calculate the before-tax cost of financing with the following alternative. coupon rate 9% time to maturity 16 years premium or discount $250
A company needed ghc 1000 to finance its activities. The firm can financed this expenditure either by bonds or equity. Interest rate on bonds is 10%. The company can earn ghc 160 in good years and ghc80 in bad years. Assuming the firm faces equal probability of good and bad years; i What will be the stream of returns on both bonds and equity if the company chooses the following financing options a 100% equity financing b 50% equity financing c 20% equity financing d 0% equity financing ii Estimate the equity risk associated with each option in (i) iii As an investor who wants to purchase a share in the company, which financing option will make you purchase the stock. Why????

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