provide correct answer general accounting Myrtle Propane is considering a project that will require $700,000 inassets. Determine the ROE if the project is financed with 100% equityand if they decide to finance it with 50% equity and 50% debt (cost ofdebt is 10%). The firm has a tax rate of 30% and the project is expectedto produce an EBIT of -$60,000.a) -4.8%; -17.1%b) -6.3%; -21.9%c) -5.1%; -20.0%d) -6.0%; -19.0%

Step 1: Definition of Return on EquityReturn on Equity (ROE) is a ratio that represents the amount…

Answered: Myrtle Propane is considering a project…

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 8P

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Wizard Co. is considering a project that will require $500,000 in assets. The project will be financed with 100% equity. The company faces a tax rate of 30%. What will be the ROE (return on equity) for this project if it produces an EBIT (earnings before interest and taxes) of $145,000? 20.3% 17.3% 14.2% 16.2% Determine what the project’s ROE will be if its EBIT is –$60,000. When calculating the tax effects, assume that Wizard Co. as a whole will have a large, positive income this year. -9.2% -8.4% -8.8% -7.6% Wizard Co. is also considering financing the project with 50% equity and 50% debt. The interest rate on the company’s debt will be 13%. What will be the project’s ROE if it produces an EBIT of $145,000? 25.2% 36.2% 29.9% 31.5% What will be the project’s ROE if it produces an EBIT of –$60,000 and it finances 50% of the project with equity and 50% with debt? When calculating the…
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igital Organics (DO) has the opportunity to invest $1.03 million now (t = 0) and expects after 2. The project will last for two years = - tax returns of $630,000 in t = 1 and $730,000 in t only. The appropriate cost of capital is 11% with all - equity financing, the borrowing rate is 7%, and DO will borrow $330,000 against the project. This debt must be repaid in two equal installments of $165,000 each. Assume debt tax shields have a net value of $0.20 per dollar of interest paid. Calculate the project's APV.
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Digital Organics (DO) has the opportunity to invest $1.01 million now (t = 0) and expects after-tax returns of $610,000 in t = 1 and $710,000 in t= 2. The project will last for two years only. The appropriate cost of capital is 13% with all-equity financing, the borrowing rate is 9%, and DO will borrow $310,000 against the project. This debt must be repaid in two equal installments of $155,000 each. Assume debt tax shields have a net value of $0.40 per dollar of interest paid. Calculate the project's APV. (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations. Round your answer to the nearest whole number.) Adjusted present value
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