Problem 14-20 WACC and NPV [LO3, 5]Leblanc, Incorpated, is considering a project that will result in initialaftertax cash savings of $1.9 million at the end of the first year, andthese savings will grow at a rate of 1 percent per year indefinitely.The firm has a target debt-equity ratio of .75, a cost of equity of 13percent, and an aftertax cost of debt of 5.8 percent. The cost-saving proposal is somewhat riskier than the usual project the firmundertakes; management uses the subjective approach and appliesan adjustment factor of +2 percent to the cost of capital for suchrisky projects. What is the maximum initial cost the company wouldbe willing to pay for the project?Do not round intermediate calculations and enter your answer indollars, not millions of dollars, rounded to the nearest wholenumber, e.g., 1,234,567.Maximum cost$17,400,000

First of all the WACC will be computed. WACC = % of equity*cost of equity + % of debt*cost of debt=…

Answered: Problem 14-20 WACC and NPV [LO3, 5]…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 16PROB

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Problem 13-16 WACC and NPV Lebleu, Incorporated, is considering a project that will result in initial aftertax cash savings of $1.86 million at the end of the first year, and these savings will grow at a rate of 2 percent per year indefinitely. The company has a target debt-equity ratio of .8, a cost of equity of 12.6 percent, and an aftertax cost of debt of 5.4 percent. The cost- saving proposal is somewhat riskier than the usual projects the firm undertakes; management uses the subjective approach and applies an adjustment factor of +3 percent to the cost of capital for such risky projects. What is the maximum initial cost the company would be willing to pay for the project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) Maximum cost ..........
17. Problem 11.20 (NPV) eBook A project has annual cash flows of $6,000 for the next 10 years and then $10,500 each year for the following 10 years. The IRR of this 20-year project is 11.42%. If the firm's WACC is 8%, what is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest cent. $
13 Skipped Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 2.5 and 3.0 years, respectively. Time: 2 3 5 Cash flow: -$231,000 $65,400 $83,600 $140,600 $121,600 $80,800 Use the payback decision rule to evaluate this project. Note: Round your answer to 2 decimal places. Payback years Should the project be accepted or rejected? (Click to select)
Saved Help Sa Problem 12-16 WACC and NPV Pink, Inc., is considering a project that will result in Initial aftertax cash savings of $1.77 million at the end of the first year, and these savings will grow at a rate of 1 percent per year indefinitely. The firm has a target debt-equity ratio of 75, a cost of equity of 11.7 percent, and an aftertax cost of debt of 4.5 percent. The cost-saving proposal is somewhat riskler than the usual projects the firm undertakes; management uses the subjective approach and applies an adjustment factor of +2 percent to the cost of capital for such risky projects. What is the maximum initial cost the company would be willing to pay for the project? (Do not round intermedlate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g, 1,234,567.89.) Maximum cost S 180,986,062.00
11. Problem 11.20 (NPV) eBook A project has annual cash flows of $7,500 for the next 10 years and then $5,500 each year for the following 10 years. The IRR of this 20-year project is 11.33%. If the firm's WACC is 11%, what is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest cent. BO $
3 NPV and IRR Benson Designs has prepared the following estimates for a long-term project it is considering. The initial investment is $18,250, and the project will yield cash inflows of $4,000 per year for 7 years. The firm has a cost of capital of 10%. a. Determine the net present value (NPV) for the project. b. Determine the internal rate of return (IRR) for the project. c. Would you recommend that the firm accept or reject the project? a. The NPV of the project is $ (Round to the nearest cent.) b. The IRR of the project is%. (Round to two decimal places.) c. Would you recommend that the firm accept the project? (Select the best answer below.) OYes O No
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Question 7 The financial manager of O.Biney Ltd is considering investing in a building project costing $200,000. The following cash flows are expected from the project. The beta of the project is 1.25 and the market return is 25%. The risk free rate of return is 14%. Year $ 0 (200,000) 1 40,000 2 45,000 3 92,000 4 95,000 e) What is the expected return/cost of equity on this project? f) GBaidoo Enterprise is a levered entity with percentage of debt out of total capital being 40%. If the interest rate on a bank loan is 20% and the cost of equity is as computed in (a), what will be the NPV of the investment? g) What is the IRR for the project? h) Reinvesting at overall cost of capital, what will be the MIRR for the proposed investment? i) What is the payback period of the project and the accounting rate of return? j) What will be your overall advice concerning viability of the project?
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