ear 4 34,000 e company should use a desired rate of return of 10 percent to ct. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the proposed project. Should Mr. Melton approve the project? ary of the cash flow forecast and she points out that the advise his project will be tax deductible. The depreciation is expected income tax rate is 30 percent per year. Use this information to r Compute the net present value of the project based on the rev the project?
ear 4 34,000 e company should use a desired rate of return of 10 percent to ct. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the proposed project. Should Mr. Melton approve the project? ary of the cash flow forecast and she points out that the advise his project will be tax deductible. The depreciation is expected income tax rate is 30 percent per year. Use this information to r Compute the net present value of the project based on the rev 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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Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
Question
Transcribed Image Text:Antonio Melton, the chief executive officer of Rooney Corporation, has assembled his top advisers to evaluate an investment
opportunity. The advisers expect the company to pay $401,000 cash at the beginning of the investment and the cash inflow for each
of the following four years to be the following. Note that the annual cash inflows below are net of tax.
Year 1
$84,000
Year 2
$99,000
Year 3
$130,000
Year 4
$184,000
Mr. Melton agrees with his advisers that the company should use a desired rate of return of 10 percent to compute net present value to
evaluate the viability of the proposed project. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)
Required
a. Compute the net present value of the proposed project. Should Mr. Melton approve the project?
b.&c. Shawn Love, one of the advisers, is wary of the cash flow forecast and she points out that the advisers failed to consider that the
depreciation on equipment used in this project will be tax deductible. The depreciation is expected to be $80,200 per year for
the four-year period. The company's income tax rate is 30 percent per year. Use this information to revise the company's
expected cash flow from this project. Compute the net present value of the project based on the revised cash flow
forecast. Should Mr. Melton approve the project?
(For all requirements, Negative amount should be indicated by a minus sign. Round your intermediate calculations and final
answer to the nearest whole dollar.)
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