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issue by the end of the third year. What is the APV of the project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) APV

issue by the end of the third year. What is the APV of the project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) APV

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
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Longhorn, Incorporated, has produced rodeo supplies for over 20 years. The company currently has a debt-equity ratio of 45 percent and the tax rate is 23 percent. The required return on the firm's levered equity is 12 percent. The company is planning to expand its production capacity. The equipment to be purchased is expected to generate the following unlevered cash flows: Year 0123 Cash Flow -$ APV 19,400,000 5,840,000 9,640,000 8,940,000 The company has arranged a debt issue of $9.72 million to partially finance the expansion. Under the loan, the company would pay interest of 7 percent at the end of each year on the outstanding balance at the beginning of the year. The company also would make year-end principal payments of $3,240,000 per year, completely retiring the issue by the end of the third year. What is the APV of the project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars. rounded to 2 decimal places, e.g., 1,234,567.89)
Transcribed Image Text:Longhorn, Incorporated, has produced rodeo supplies for over 20 years. The company currently has a debt-equity ratio of 45 percent and the tax rate is 23 percent. The required return on the firm's levered equity is 12 percent. The company is planning to expand its production capacity. The equipment to be purchased is expected to generate the following unlevered cash flows: Year 0123 Cash Flow -$ APV 19,400,000 5,840,000 9,640,000 8,940,000 The company has arranged a debt issue of $9.72 million to partially finance the expansion. Under the loan, the company would pay interest of 7 percent at the end of each year on the outstanding balance at the beginning of the year. The company also would make year-end principal payments of $3,240,000 per year, completely retiring the issue by the end of the third year. What is the APV of the project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars. rounded to 2 decimal places, e.g., 1,234,567.89)
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