High Roller Properties is considering building a new casino at a cost of P10 million at t = 0. The after-tax cash flows the casino generates will depend on whether the state imposes a new income tax, and there is a 50-50 chance the tax will pass. If it passes, after-tax cash flows will be P1.875 million per year for the next 5 years. If it doesn't pass, the after-tax cash flows will be P3.75 million per year for the next 5 years. The project's WACC is 11.0%. If the tax is passed, the firm will have the option to abandon the project 1 year from now, in which case the property could be sold to net P6.5 million after tax at t = 1. What is the value (in thousands) of this abandonment option? O P308 P249 P224 O P277

High Roller Properties is considering building a new casino at a cost of P10 million at t = 0. The after-tax cash flows the casino generates will depend on whether the state imposes a new income tax, and there is a 50-50 chance the tax will pass. If it passes, after-tax cash flows will be P1.875 million per year for the next 5 years. If it doesn't pass, the after-tax cash flows will be P3.75 million per year for the next 5 years. The project's WACC is 11.0%. If the tax is passed, the firm will have the option to abandon the project 1 year from now, in which case the property could be sold to net P6.5 million after tax at t = 1. What is the value (in thousands) of this abandonment option? O P308 P249 P224 O P277

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Jensen Shipping is considering a project that has an initial cost of $218,000. The project will produce aftertax cash flows of $49,000 a year forever. The firm's WACC is 15.8 percent and its tax rate is 34 percent. Equity has a flotation cost of 14.0 percent while the flotation cost for debt is 2.0 percent. What is the net present value of this project, including the flotation costs, if the firm's debt-equity ratio is .5? (Rounded) Multiple Choice $62,501 $53,088 $47,088 $67,904
(Net present value calculation) Dowling Sportswear is considering building a new factory to produce aluminum baseball bats. This project would require an initial cash outlay of $4,000,000 and would generate annual net cash inflows of $900,000 per year for 9 years. Calculate the project's NPV using a discount rate of 8 percent. If the discount rate is 8 percent, then the project's NPV is $ ?
Gluon Incorporated is considering the purchase of a new high pressure glueball. It can purchase the glueball for $150,000 and sell its old low-pressure glueball, which is fully depreciated, for $26,000 The new equipment has a 10-year useful life and will save $34,000 a year in expenses before tax. The opportunity cost of capital is 11%, and the firm's tax rate is 21%. What is the equivalent annual saving from the purchase if Gluon can depreciate 100% of the investment immediately. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Answer is complete but not entirely correct. Equivalent annual savings $ 16,934.51
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(Related to Checkpoint 11.1) (Net present value calculation) Dowling Sportswear is considering building a new factory to produce aluminum baseball bats. This project would require an initial cash outlay of $4,000,000 and would generate annual net cash inflows of $1,100,000 per year for 6 years. Calculate the project's NPV using a discount rate of 5 percent. *** If the discount rate is 5 percent, then the project's NPV is $. (Round to the nearest dollar.)
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