Kohwe Corporation plans to finance a new investment with leverage. Kohwe Corporation plans to borrow $49.3 million to finance the new investment. The firm will pay interest only on this loan each year, and itwill maintain an outstanding balance of $49.3 million on the loan. After making the investment, Kohwe expects to earn free cash flows of $10.7 million each year. However, due to reduced sales and other financialdistress costs, Kohwe's expected free cash flows will decline to $9.7 million per year. Kohwe currently has 4.6 million shares outstanding, and it has no other assets or opportunities. Assume that the appropriatediscount rate for Kohwe's future free cash flows is 7.9% and Kohwe's corporate tax rate is 40%. What is Kohwe's share price today given the financial distress costs of leverage?The price per share is $23.01 per share. (Round to the nearest cent.)C

Outstanding balance on loan = $49,400,000Free cash flow= $10,700,000Expected Free cash flow=…

Answered: Kohwe Corporation plans to finance a…

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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The Lesseig Company has an opportunity to invest in one of two mutually exclusive machines that will produce a product the company will need for the next 8 years. Machine A has an after-tax cost of $9.9 million but will provide after-tax inflows of $4.2 million per year for 4 years. If Machine A were replaced, its after-tax cost would be $11.8 million due to inflation and its after-tax cash inflows would increase to $4.5 million due to production efficiencies, Machine B has an after-tax cost of $13.1 million and will provide after-tax inflows of $3.6 million per year for 8 years. If the WACC is 7%, which machine should be acquired? Explain. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answers to two decimal places. Machine -Select- is the better project and will increase the company's value by $ millions, rather than the s millions created by Machine -Select-.
MIG Tools can either lease or buy some equipment. The lease payments would be $12,800 a year and the purchase price is $35,900. The equipment has a 3-year life after which it is expected to have a resale value of $5,000. The firm uses 100 percent bonus depreciation, borrows money at 8 percent, and has a tax rate of 21 percent. What is the incremental cash flow for Year 1 if the company decides to lease the equipment rather than purchase it? Multiple Choice −$19,405 −$16,805 −$17,651 −$14,184 −$14,905
Grady-White Boats, Inc. is considering a project that will require additional inventory of $1,131,000. In addition, pursuing this project will also increase accounts payable by $400,000 as suppliers are willing to finance part of these purchases. Accounts receivable are currently $800,000 and are expected to increase by 10% if this project is accepted. The firm's cash requirements are not anticipated to change. What is the incremental change to net working capital as a result of accepting this project? O A. $1,531,000 O B. $1,451,000 C. $811,000 D. $651,000 O E. $1,611,000
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Blue Sky Corporation is trying to decide whether to invest in equipment to manufacture a new product. If the investment project is accepted, sales revenue will increase by $78,000 per year and materials costs will decrease by $47,000 per year. The equipment will cost $244,000 and is depreciable over 14 years using simplified straight line (zero salvage value). The firm has a marginal tax rate of 34%. Calculate the firm's annual cash flows resulting from the new project. ENTER YOUR ANSWER IN THE SPACE PROVIDED. DO NOT ENTER THE DOLLAR SIGN.
Please answer fast i give you upvote.
Novel Industries purchases a 41.2 million cyclo-converter. The cyclo-converter will be depreciated by 10.30 million per year over 4 years, starting this year. Suppose Nokela's tax rate is 40%. a) a. What impact will the cost of the purchase have on earnings for each of the next 4 years? b) What impact will the cost of the purchase have on the firm's cash flow for the next 4 years?
Rawr Chemicals is considering an investment project. The project requires an initial P3 million outlay for equipment and machinery. Sales are projected to be P1.5 million per year for the next four years. The equipment will be fully depreciated straight-line by the end of year 4. Cost of goods sold and operating expense (not including depreciation) are predicted to be 40% of sales. The equipment can be sold for P400,000 at the end of year 4. Rawr Chemicals also needs to add net working capital of P100,000 immediately. The net working capital will be recovered in full at the end of the fourth year. Assume the tax rate is 40% and the cost of capital is 10%. What is the NPV of this investment?
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.You are negotiating to make a 7-year loan of $25,000 to Breck Inc. To repay you, Breck will pay $2,500 at the end of Year 1, $5,000 at the end of Year 2, and $7,500 at the end of Year 3, plus a fixed but currently unspecified cash flow, X, at the end of each year from Year 4 through Year 7. Breck is essentially riskless, so you are confident the payments will be made. You regard 8% as an appropriate rate of return on a low risk but illiquid 7-year loan. What cash flow must the investment provide at the end of each of the final 4 years, that is, what is X?
Hardev
THX Ltd is a private equity firm that is considering investing in an investment project with a cost of R300m which will result in after-tax operating cash flows of R100m per year for 5 years. The company is considering borrowing R150m at an interest rate of 10% per year to partly finance the project. The loan is repayable at the end of year 5. The tax rate is 2896. Determine the IRR of the investment without any borrowing and the IRR if the company undertakes the borrowing.

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