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DavidLee Corporation has $50 million in debt and $60 million in equity. The interest rate on the debt is 12% and a beta is 1.25. The corporate tax rate is 35% and the market risk premium is 6%, and the current t-bill rate is 4.5%. This firm is now to consider a $6.5 million investment project. Cash flow is expected to be about $665,000 per year for a fairly long period of time. Determine if this project is worthwhile to proceed
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- Omani corporation is currently financed with 25% debt that could be borrowed at an interest rate of 10% and 75% equity. Management of a company is considering increasing its level of debt until 50% at the same interest to finance a new project with cost OMR (12) thousand. The new project will generate a cash flow that is mentioned in the below table. You are the financial manager of the company; hold other things are fixed, do you will recommend to increasing the level of debt up to 50% for the following aspects: - In the field of the level of cost of capital (WACC) and why? In the field of evaluating the new project, and why? Data is regarding the current position of the company Market risk premium of stock 4% Income Tax Rate 40% Risk-Free Rate of Return 6% Data is regarding the cash flow of project. Years 1 2 3 4 Cash Flow 2000 (1000) 6000 6000Dyrdek Enterprises has equity with a market value of $10.9 million and the market value of debt is $3.60 million. The company is evaluating a new project that has more risk than the firm. As a result, the company will apply a risk adjustment factor of 1.7 percent. The new project will cost $2.22 million today and provide annual cash flows of $581,000 for the next 6 years. The company's cost of equity is 11.11 percent and the pretax cost of debt is 4.89 percent. The tax rate is 21 percent. What is the project's NPV? Multiple Choice $230,173 $375,414 $237,180 $219,241 $512,072Lible, Incorporated, is considering a project that will result in initial aftertax cash savings of $1.74 million at the end of the first year, and these savings will grow at a rate of 1 percent per year indefinitely. The firm has a target debt-equity ratio of .75, a cost of equity of 11.4 percent, and an aftertax cost of debt of 4.2 percent. The cost-saving proposal is somewhat riskier than the usual project the firm undertakes; management uses the subjective approach and applies an adjustment factor of +2 percent to the cost of capital for such risky projects. What is the maximum initial cost the company would be willing to pay for the project? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to the nearest whole number, e.g., 1,234,567.)
- WACC and NPV Pink, Inc., is considering a project that will result in initial aftertax cash savings of $1.82 million at the end of the first year, and these savings will grow at a rate of 3 percent per year indefinitely. The firm has a target debt-equity ratio of .85, a cost of equity of 12.2 percent, and an aftertax cost of debt of 5 percent. The cost-saving proposal is somewhat riskier than the usual projects the firm undertakes; management uses the subjective approach and applies an adjustment factor of +2 percent to the cost of capital for such risky projects. What is the maximum initial cost the company would be willing to pay for the project?You are a consultant who was hired to evaluate a new product line for Markum Enterprises. The upfront investment required to launch the product line is $150 million (time 0). The product will generate free cash flow of $8 million the first year, and this free cash flow is expected to grow at a rate of 3.5% per year. Markum has an equity cost of capital of 12%, a debt cost of capital of 5%, and a marginal tax rate of 40%. Markum plans to finance the project with perpetual debt of $100 million that has an interest rate of 4%. Calculate the PV of the project using the APV method. Group of answer choices 192 162 82 252I am opening a new factory. The factory will cost $10 million up front. I expect a cash flow of $6 million next year. The cash flows will grow at a rate of 1% indefinitely. There are 2 million shares. What is the NPV if the cost of capital is 6%? The current stock price is $50. What is the impact of this project on the stock price?
- You are a consultant who was hired to evaluate a new product line for Markum Enterprises. The upfront investment required to launch the product line is $10 million. The product will generate free cash flow of $750,000 the first year, and this free cash flow is expected to grow at a rate of 3% per year. Markum has an equity cost of capital of 11.3%, a debt cost capital of 4.33%, and a tax rate of 25%. Markum maintains a debt-equity ratio of 0.50. How much debt will Markum initially take on as a result of launching this product line? a) $2.34 million b) $4.29 million c) $3.70 million d) $2.94 million e) None of the answers is correctA firm is considering a project that will last five years and will generate an annual cash flow of $9 million. The project requires an initial investment of $28 million. Assume that the cost of equity for the project is 20% if the project is 100 percent equity financed. The firm can obtain a loan for $22.5 million to start the project, at a rate of 10 percent ($2.25 million in interest paid each year, with principal paid in a lump sum at the end of the loan). However, the lender will only extend the loan for three years. The firm's tax rate is 30 percent. Calculate the APV of the project. Is this investment worthwhile for the firm?Ariana, Incorporated, is considering a project that will result in initial aftertax cash savings of $5.7 million at the end of the first year, and these savings will grow at a rate of 3 percent per year, indefinitely. The firm has a target debt-equity ratio of .56, a cost of equity of 13.1 percent, and an aftertax cost of debt of 5 percent. The cost-saving proposal is somewhat riskier than the usual project the firm undertakes; management uses the subjective approach and applies an adjustment factor of +2 percent to the cost of capital for such risky projects. Calculate the required return for the project. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. What is the maximum cost the company would be willing to pay for this project? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
- Dyrdek Enterprises has equity with a market value of $12.6 million and the market value of debt is $4.45 million. The company is evaluating a new project that has more risk than the firm. As a result, the company will apply a risk adjustment factor of 1.9 percent. The new project will cost $2.56 million today and provide annual cash flows of $666,000 for the next 6 years. The company's cost of equity is 11.79 percent and the pretax cost of debt is 5.06 percent. The tax rate is 24 percent. What is the project's NPV? Multiple Choice $208,195 $194,561 $536,049 $183,363 $364,858The firm is considering replacing their computer system. The incremental cash flow from assets for this project are an $80,000 initial investment and and the expected cash flows are $36,000 per vear for the next 3 years. Based on the IRR, should you accept or reject the project? Note: You have already calculated the WACC in the previous question. This is here as a reference in case you need it: Bluefield Corporation has 6 million shares of common stock outstanding, 600,000 shares of preferred stock that pays an annual dividend of $8, and 200,000 bonds with a 10 percent coupon (semiannual interest) and 20 years to maturity. At present, the common stock is selling for $50 per share, the bonds are selling for $950.62 per $1,000 of face value, and the preferred stock is selling at $74 per share. The estimated market return is 13%, the risk free rate is 8%, and Bluefield's beta is 1.4. Bluefield's tax rate is 30 percent. Short Answer Toolbar navigation BIUS E = E E E EThere is a new product launch, and the research and development costs are $40 million today. The product is expected to go on sale right away and is forecasted to produce year-end profits of $8.5 million the first year. From then on it is expected to grow a 5% for the next four years. Its last year will earn a projected $7 million in profit. The cost of capital for this project is 11% compounded annually. From a financial perspective only, should this new product be launched? 1. What is the NPV after Initial Investment of this project? 2. What is the Internal Rate of Return and how does it compare to the cost of capital? 3. From a financial perspective only, should this new product be launched?
