Kohwe Corporation plans to issue equity to raise $50.7 million to finance a new investment. After making the investment, Kohwe expects to earn free cash flows of $10.4 million each year. Kohwe's only asset is this investment opportunity. Suppose the appropriate discount rate for Kohwe's future free cash flows is 7.7%, and the only capital market imperfections are corporate taxes and financial distress costs. a. What is the NPV of Kohwe's investment? b. What is the value of Kohwe if it finances the investment with equity? a. What is the NPV of Kohwe's investment? The NPV Kohwe's investment is $ million. (Round to two decimal places.) b. What is the value of Kohwe if it finances the investment with equity? The value of Kohwe if it finances the investment with equity is $million. (Round to two decimal places.)

Kohwe Corporation plans to issue equity to raise $50.7 million to finance a new investment. After making the investment, Kohwe expects to earn free cash flows of $10.4 million each year. Kohwe's only asset is this investment opportunity. Suppose the appropriate discount rate for Kohwe's future free cash flows is 7.7%, and the only capital market imperfections are corporate taxes and financial distress costs. a. What is the NPV of Kohwe's investment? b. What is the value of Kohwe if it finances the investment with equity? a. What is the NPV of Kohwe's investment? The NPV Kohwe's investment is $ million. (Round to two decimal places.) b. What is the value of Kohwe if it finances the investment with equity? The value of Kohwe if it finances the investment with equity is $million. (Round to two decimal places.)

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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Firm X has the opportunity to invest $285,000 in a new venture. The projected cash flows from the venture are as follows. Use Appendix A and Appendix B. Initial investment Revenues. Expenses Return of investment Before-tax net cash flow Req A1 Year 0 $ (285,000) Req A2 $ (285,000) Firm X uses an 8 percent discount rate, and its marginal tax rate over the life of the venture will be 30 percent. Required: a1. Complete the below table to calculate NPV. Assume that the revenues are taxable income, and the expenses are deductible. a2. Should firm X make the investment? Req B1 Before-tax cash flow Tax cost Net cash flow Discount factor (8%) Present value NPV b1. Complete the below table to calculate NPV. Assume that the revenues are taxable income, but the expenses are nondeductible. b2. Should firm X make the investment? Complete this question by entering your answers in the tabs below. Year 1 $ 54,800 (32,880) $ 21,920 Req B2 Year 0 Year 2 S $ 54,800 (8,220) $ 46,580 Complete the below…
3. (Ignore income taxes in this problem.) ABC Co. is considering an investment opportunity having cash flows as described below: Project III would require a cash outlay of $10,000 now and would provide a cash inflow of $30,000 eight years from now. Required: If ABC Co. has a required rate of return of 14%, determine if the project is acceptable. Use the NPV method.
Royal Bank of Belgium (RBB) will be worth €100 million or €120 million with equal probability in one year. RBB is highly leveraged and has bonds outstanding promising to pay €90 million next year. RBB is considering a risky project that will payoff €50 million or -€65 million with equal probability. Would RBB’s shareholders want you to engage in the risky project? What is the expected payoff to RBB’s existing shareholders? How would your answers change if the bondholders could convert the bond to 80% of RBB’s equity?
1a.Compute the net present value of this investment.b. Should Beyer accept the investment?
am. 120.
A project costs $379 at t = 0 and generates unlevered after - tax cash flows of $50 per year forever. The project's unlevered cost of capital is 10.5%. The initial cost of the project is paid for with a combination of debt and equity. Debt contributes $77 and will earn interest at 2.0% forever. (The debt is perpetual, it never matures. Assume the debt tax shield cash flows have the same risk profile as the debt cash flows. The debt is fairly priced. All of the project NPV accrues to the equity holders.) The tax rate is 17%. What is the levered NPV of the project? (Calculate using the APV method.) Give your answer in dollars to the nearest $0.1
6. Lucron Corp. is considering a project that will cost $310,000 and will generate after-tax cash flows of $96,000 per year for 5 years. The firm's WACC is 12% and its target D/E ratio is 2/3. The flotation cost for debt is 4% and the flotation cost for equity is 8%. What would be the new cost of the project after adjusting for flotation costs? A) $328,390 B$329,787 $331,197 D) $329,840 E) $290,160 7. When calculating weights for the WACC, it has become relatively common to use Net Debt. How is Net Debt calculated? A) Net Debt = Total amount of debt - Cash & Risk-Free Securities B) Net Debt = Total amount of debt + Cash & Risk-Free Securities C) Net Debt = Long-term Debt - Short-term Debt D) Net Debt Short-term Debt-Long-term Debt E) Net Debt- Long-term Debt-Short-term Debt + Cash & Risk-Free Securities Please use the following information to answer the next THREE questions. LNZ Corp. is thinking about leasing equipment to make tinted lenses. This equipment would cost $3,400,000 if…
Suppose you sell a fixed asset for $115,000 when it's book value is $135,000. If your company's marginal tax rate is 21%, what will be the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)?
Baghiben
A project requires an initial investment of $100,000 and is expected to produce a cash inflow before tax of $27, 300 per year for five years. Company A has substantial accumulated tax losses and is unlikely to pay taxes in the foreseeable future. Company B pays corporate taxes at a rate of 21% and can claim a 100% bonus depreciation immediately on the investment. Suppose the opportunity cost of capital is 10%. Ignore inflation. Calculate the project NPV for each company. What is the IRR of the after-tax cash flows for each company?
(1)Find the required rate of return on Oakfield stocks? (ii)What is the beta of the company's existing portfolio of assets? 4. Kangaroo and Kimiti Co.Ltd is attempting to evaluate the feasibility of investing tshs 95 million in a piece of equipment with a five year lifespan. The company has estimated the profits after taxes and cash inflows associated with the project as follows: Year Profit after Cash flow("000") taxes("000") 1 انه ای 2 3 4 5 5000 3000 9000 14000 19000 The company has 12% cost of capital. 6/17/2021 8:05:06 PM 20000 25000 30000 35000 40000 Page 1 of 2
WhiteScreen LLC is evaluating Project T, which requires an initial investment of RO 18000. The expected net cash flows are RO 5000 pa for four years at today’s prices. However, these are expected to rise by 5.5% pa because of inflation. The firm’s cost of capital is 15%. What is the NPV for Project T being evaluated by WhiteScreen LLC using the discounting real cash flows? -1802 -2803 2500 14792

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