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…

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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?
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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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…
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
A company is considering an investment project that would cost $10 million today and yield a payoff of $15 million in 4 years. Complete the following table by indicating whether the firm should undertake the project for each of the interest rates listed. Interest Rate Undertake Project? Yes No 11% 10% 9% 8% Which of the following formulas would help you figure out the exact cutoff for the interest rate between profitability and nonprofitability? 10=15(1+x)410=151+x4 10=15x410=15x4 10=15×(1+x)410=15×1+x4 15=10(1+x)4
A 4 year project requires an initial investment of $150,000 that will generate an annual after-tax cash flow of $60,000. Company's target debt-to-equity ratio is 0.3. Management has also estimated that the cost of equity would be 14% and the cost of debt would be 10%. If the marginal tax rate is 21%, what is the NPV of the project? Group of answer choices $29,991 $30,338 $32,049
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In an effort to increase its customer base, a company set the project MARR at exactly the WACC. If equity capital costs 8% per year and debt capital costs 12.5% for the project, what is the equity-debt percentage mix of capital required to make the WACC = 10%?

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