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Determine the Cost of Capital (k)

Determine the Cost of Capital (k)

Essentials Of Investments
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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Problem 3. Mala Prohibita Inc. is evaluating a proposal to acquire a new equipment. The equipment would require an investment of P417,860, including freight and installation cost of P40,000. It expected to have a 10- year life with no scrap value at the end of its life. It has been estimated that the new equipment would increase the company's cash inflows, net of expenses and income taxes by P68,000. The company can issue its 7% P1,000 par value bond to fund the project. The same type of bond is available in the market at P932.04836 per bond with interest payable semi-annually for ten years. The company is subject to 32% income tax. Determine the Cost of Capital (k) Solution: 3
Transcribed Image Text:Problem 3. Mala Prohibita Inc. is evaluating a proposal to acquire a new equipment. The equipment would require an investment of P417,860, including freight and installation cost of P40,000. It expected to have a 10- year life with no scrap value at the end of its life. It has been estimated that the new equipment would increase the company's cash inflows, net of expenses and income taxes by P68,000. The company can issue its 7% P1,000 par value bond to fund the project. The same type of bond is available in the market at P932.04836 per bond with interest payable semi-annually for ten years. The company is subject to 32% income tax. Determine the Cost of Capital (k) Solution: 3
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