Problem 11-13 Flotation Cost (LG11-2)A firm is considering a project that will generate perpetual after-tax cash flows of $23,500 per year beginning next year. The projecthas the same risk as the firm's overall operations and must be financed externally. Equity flotation costs 12 percent and debt issuescost 5 percent on an after-tax basis. The firm's D/E ratio is 0.7.What is the most the firm can pay for the project and still earn its required return?Note: Do not round Intermediate calculations. Round your answer to the nearest whole dollar.Maximum the firm can pay

Step 1: Given Value for Calculation After Tax Cash Flow = cf = $23,500Equity Flotation Cost = ec =…

Answered: Problem 11-13 Flotation Cost (LG11-2) A…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter9: Capital Budgeting Techniques

Section: Chapter Questions

Problem 2PROB

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Question 2 A firm is considering an investment project that has a cost of $1 million and is expected to generate an annual after-tax cash flow of $250,000 for five years. It has already spent $25,000 in research and development (R&D) costs for the project. If the firm's required rate of return is 14 percent and consider R&D a sunck cost, what is the NPV of this project? A $25,000 B -$141,750 C +141,750 D $858,250
aj.7 Steve's Stoves Company, which desires a minimum rate of return on its investment projects of 15%, has two proposals under consideration. Their costs and expected cash flows are: A B Initial Investment $96,000 $132,000 Expected after-tax cash flows: Year 1 $40,000 $52,000 Year 2 $32,000 $56,000 Year 3 $48,000 $40,000 Year 4 $24,000 $32,000 In addition, proposal B has an expected cash salvage value at the end of four years of $8,000. The present value of $1 due in 1, 2, 3, and 4 years at 15% is .86957, .75614, .65752, and .57175, respectively.Using the profitability index method, determine which project, if either, should be accepted by the company.
QUESTION 7 A company is considering to invest in a project that is expected to yield the following cash flows; the firm's required rate of return from the project is 10%. Initial Outflow = $200,000 Cash Flow Year 1 = $80,000 Cash Flow Year 4 = $160,000 Cash Flow Year 5 = $120,000 What is the project's NPV? O 50,310.77 O 49,689.85 O 56,519.98 O 42,859.72 O 36,029.58
14. APV Consider a project lasting one year only. The initial outlay is $1,000, and the expected inflow is $1,200. The opportunity cost of capital is r= .20. The borrowing rate is rp.10, and the tax shield per dollar of interest is T - .21. a. What is the project's base-case NPV? b. What is its APV if the firm borrows 30% of the project's required investment?
10.5 Net present value: Blanda Incorporated management is considering investing in two alternative production systems. The systems are mutually exclusive, and the cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses a 9 percent discount rate for production system projects, in which system should the firm invest? Year System 1 System 2 -$15,000 -$45,000 1 15,000 32,000 2 15,000 32,000 15,000 32,000 10.6 Payback: Refer to Problem 10.5. What are the payback periods for production systems 1 and 2? If the systems are mutually exclusive and the firm always chooses projects with the lowest payback period, in which system should the firm invest? 10.7 Payback: Quebec, Inc., is purchasing machinery at a cost of $3,768,966. The company's management expects the machinery to produce cash flows of $979,225, $1,158,886, and $1,881,497 over the next three years, respectively. What is the payback period? 10.8 Payback: Northern Specialties just…
The following are two projects a firm is considering: Project B Cash Flow Year 0 1 2 3 4 $2,939.01 Assuming that the relevant cost of capital for both projects is 11%, you should be able to determine the net present value (NPV) and the internal rate of return (IRR) for both project. Assume now that the firm has capital rationing, but knows that its true reinvestment rate is 20%, while its cost of capital is 11 percent. Given this information, determine the modified net present value (MNPV) for Project B. O $2.479.00 O $2.965.10 O$3.479.89 Project A Cash Flow O $4,084.05 ($10,000.00) ($11,000.00) $3,000.00 $5,000.00 $4,000.00 $4,000 00 $5,000.00 $4,000.00 $2,000.00 $2,000.00
10. Jefferson International is trying to choose between the following two mutually exclusive design projects: The required return is 25 %. If the company applies the profitability index (PI) decision rule, which project should the firm accept? If the company applies the NPV decision rule, which project should it take? Given your first two answers, which project should the firm actually accept? Year Cash flows (A) Cash flows (B) 0 $ 92,000 $ 72,000 1 $ 26,900 $ 37,900 2 $ 26,900 $45,600 3 $92,700 $ 25,000
#29 A company with a required rate of return of 12 percent is considering a project with an RM40,000 initial investment. The net cash flows are expected to be RM15,000 per year over the four-year-life projects. Determine whether or not this project should be accepted based on internal rate of return techniques. Answer O IRR = 18.46 percent, accept the project IRR > required rate of return 12 percent O IRR = 17.45 percent, reject the project IRR required rate of return 12 percent
Can I get the answers to 10.7 and 10.8
4 Quantitative Problem: Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after-tax cash flows are shown on the time line below. Depreciation, salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. Both projects have 4-year lives, and they have risk characteristics similar to the firm's average project. Bellinger's WACC is 9%. 0 1 2 3 4 Project A -920 650 395 230 280 Project B -920 250 330 380 730 What is Project A's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.$ What is Project B's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.$ If the projects were independent, which project(s) would be accepted?-Select-NeitherProject AProject BBoth projects A and BCorrect 1 of Item 3If the projects were mutually…
Pls tell me how I work out question 1(b) is there a formula? Thank you
21. The Caffeine Coffee Company uses the modified internal rate of return. The firm has a cost of capital of 11 percent. The project being analyzed is as follows ($26,000 investment): n Year 1 2. 3.. Cash Flow $12,000 11,000 9,000 a. What is the modified internal rate of return? page 405 b. Assume the traditional internal rate of return on the investment is 17.5 percent. Explain why your answer in part a would be lower.

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