Choice correct answer is 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: Define Return on Equity:Return on Equity (ROE) is a ratio that represents the amount of…

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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Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
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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…
AAA Inc. is evaluating a project that will require $500,000 in assets. The project is financed with equity only and is expected to generate earnings before interest and taxes of $90,000. The firm has a tax rate of 16%. What is the ROE (return on equit for this project? a. 16.00% b. 18.15% O c. 10.75% O d. 15.12%
Abc
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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.
Universal Exports Inc. is a small company and is considering a project that will require $650,000 in assets. The project will be financed with 100% equity. The company faces a tax rate of 25%. What will be the ROE (return on equity) for this project if it produces an EBIT (earnings before interest and taxes) of $155,000? 10.73% 17.88% 18.77% 12.52% Determine what the project’s ROE will be if its EBIT is –$50,000. When calculating the tax effects, assume that Universal Exports Inc. as a whole will have a large, positive income this year. -4.64% -6.67% -5.22% -5.8% Universal Exports Inc. is also considering financing the project with 50% equity and 50% debt. The interest rate on the company’s debt will be 12%. What will be the project’s ROE if it produces an EBIT of $155,000? 28.11% 18.74% 26.77% 21.42% What will be the project’s ROE if it produces an EBIT of –$50,000 and it…
ABC Industries is considering a 3-year project that will cost $200 today followed by free cash flows to firm of $100 in year 1, $80 in year 2, and $160 in year 3. ABC has $1000 of assets with a debt ratio of 40.00%. ABC's before-tax cost of debt is 7.00% and its cost of equity is 12.00%. Suppose ABC pays a fee of$6 to the investment bankers who help them to raise the $120 Debt capital. Assuming the tax rate is 35.00% and that the flotation cost can be amortized (i.e. deducted) for tax purposes over the 3 year life of the project. The NPV of the project using the APV method, taking into account the flotation costs, is closest to: $8.40 $11.34 $10.66 $7.72
general accounting
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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…

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