Problem 18-7 NPV for an All-Equity CompanyJiminez, Incorporated, is an all-equity firm. The cost of the company's equity is currently11.5 percent and the risk-free rate is 4.4 percent. The company is currently considering aproject that will cost $11.94 million and last six years. The company uses straight-linedepreciation. The project will generate revenues minus expenses each year in theamount of $3.55 million. If the company has a tax rate of 23 percent, what is the netpresent value of the project? (Do not round intermediate calculations and enter youranswer in dollars, not millions of dollars, rounded to 2 decimal places, e.g.,1,234,567.89)Net present$ 6,886,082.02value

The answer is in the explanation.Explanation:1. Annual Revenue = $3.55 million 2. Depreciation: The…

Answered: Problem 18-7 NPV for an All-Equity…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Q No. 1 Assume that you are given assignment to evaluate the capital budgeting projects of the company which is considering investing in two coal projects, “Thar Coal Project” and “Sahiwal Coal Project”. The initial cost of each project is Rs. 10000 Million. Company discounts all projects based on WACC. Further, all the projects are equally risky projects, and the company uses only debt and common equity for financing these projects. It can borrow unlimited amounts at after tax interest rate of rd 5% as long as it finances at its target capital structure, which calls for 50% debt and 50% common equity. The dividend for next period is Rs 4.0, its expected that they will grow at the constant growth rate of 8%, and the company’s common stock sells for 40. The tax rate is 50%. The cash flows of both the projects are given in table below: Time Thar Coal Project Cashflows (amount in Rs. Millions) Sahiwal Coal Project Cashflows (amount in Rs. Millions)0 - 10,000 - 10,0001 6,500 3,5002 3,000…
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Bhupatbhai
Problem 18-12 Eagle Products EBITDA is $500, its tax rate is 21%, depreciation is $30, capital expenditures are $80, and the planned increase in net working capital is $10. What is the free cash flow to the firm? (Round your answer to 2 decimal place.) Answer is complete but not entirely correct. $335.00 FCFF
QUESTION 30 Twin Buttes Mine Co. is considering two mutually exclusive projects. Both require an initial investment of $10,000 at t = 0. Project X has an expected life of 2 years with after-tax cash inflows of $6,000 and $8,500 at the end of Years 1 and 2, respectively. In addition, Project X can be repeated at the end of Year 2 with no changes in its cash flows. Project Y has an expected life of 4 years with after-tax cash inflows of $4,600 at the end of each of the next 4 years. Each project has a WACC of 11%. What is the equivalent annual annuity of the most profitable project? a. $1,345.50 O b. $1,346.30 O c. $1,361.52 O d. $1,376.74 O e. $1,411.15
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Brief Exercise 12-9 Swift Oil Company is considering investing in a new oil well. It is expected that the oil well will increase annual revenues by $123,465 and will increase annual expenses by $67,000 including depreciation. The oil well will cost $481,000 and will have a $10,000 salvage value at the end of its 10-year useful life. Calculate the annual rate of return. (Round answer to 0 decimal places, e.g. 13%.) Annual rate of return % Click if you would like to Show Work for this question: Open Show Work
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Problem 9-33 Working Capital (LO4) Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $6.3 million. The equipment will be depreciated straight-line over 6 years, but, in fact, it can be sold after 6 years for $519,000. The firm believes that working capital at each date must be maintained at a level of 10% of next year's forecast sales. The firm estimates production costs equal to $1.20 per trap and believes that the traps can be sold for $5 each. Sales forecasts are given in the following table. The project will come to an end in 6 years, when the trap becomes technologically obsolete. The firm's tax bracket is 40%, and the required rate of return on the project is 10%. Year: Sales (millions of traps) 0 1 2 0 0.5 0.6 3 0.7 4 5 0.7 0.5 6 0.2 Thereafter 0 Suppose the firm can cut its requirements for working capital in half by using better inventory control systems. By how much will this increase project NPV? Note: Do not…
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Q No. 1 Assume that you are given assignment to evaluate the capital budgeting projects of the company which is considering investing in two coal projects, “Thar Coal Project” and “Sahiwal Coal Project”. The initial cost of each project is Rs. 10000 Million. Company discounts all projects based on WACC. Further, all the projects are equally risky projects, and the company uses only debt and common equity for financing these projects. It can borrow unlimited amounts at after tax interest rate of rd 5% as long as it finances at its target capital structure, which calls for 50% debt and 50% common equity. The dividend for next period is Rs 4.0, its expected that they will grow at the constant growth rate of 8%, and the company’s common stock sells for 40. The tax rate is 50%. The cash flows of both the projects are given in table below: Time Thar Coal Project Cashflows (amount in Rs. Millions) Sahiwal Coal Project Cashflows (amount in Rs. Millions)0 - 10,000 - 10,0001 6,500 3,5002 3,000…

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