Projected Year: 1 2 3 4 5 6 7Net Capital Spending 1.80 1.90 2.20 2.16 2.30 3.00 3.25Depreciation 0.50 0.75 0.90 0.95 1.10 1.25 1.50EBIT 2.50 3.50 4.10 4.50 5.10 6.00 7.10Change in NWC 0.20 0.25 0.30 0.40 0.60 0.70 1.10For ABC Co., the projected cash flow components (in Smil) during theprojection period are as stated. Marginal tax rate is 35% and WACC is10%. EV/EBITDA Exit multiple is 9x. Using mid-year conventionmethod:Based on the assumptions above, what is the Enterprise Value for ABC CoG?

To calculate the Enterprise Value (EV) for ABC Co. based on the provided data, we need to follow…

Answered: Projected Year: 1 2 3 4 5 6 7 Net…

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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7
Internal Rate of Return A project is estimated to cost $244,296 and provide annual net cash flows of $58,000 for five years. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 Determine the internal rate of return for this project, using the Present Value of an Annuity of $1 at Compound Interest table shown above.fill in the blank 1 %
Internal Rate of Return A project is estimated to cost $350,265 and provide annual net cash flows of $57,000 for 10 years. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 1 0.909 0.893 0.870 0.833 1.833 1.690 1.528 1.736 1.626 2.673 3 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.352 2.991 4.355 4.111 3.784 3.326 6 4.917 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 Determine the internal rate of return for this project, using the Present Value of an Annuity of $1 at Compound Interest table shown above. %
a) b) Consider the following two projects: Project A B Year 0 Cash Flow -100 -73 17.3% C. d. Year 1 Cash Flow 40 30 a. 30 percent. b. 20 percent. 0 percent. 10 percent. Year 2 Cash Flow What is the incremental IRR of Project B over Project A? a. 12.6% b. 23.3% C. 1.7% d. 50 30 Year 3 Cash Flow 60 30 Year 4 Cash Flow N/A 30 Discount Rate If the standard deviation of returns on the market is 20 percent, and the beta of a well- diversified portfolio is 1.5, calculate the standard deviation of this portfolio. .15 .15
Year Cashflow Interest rate 11% 0 (294,000) 1 106,448 2 97,628 3 88,808 4 127,518 Calculate the Project's NPV, IRR, MIRR, and payback. Do these indicators suggest that the project should be accepted? Explain
>Unit-of-production method This method amortizes the costs of oil and gas industry activities and is dependent on the accounting method chosen by the owner of the assets. The following general formula shows the concept of unit-of- production amortization: [unamortized costs at end of period]+|production for period [Amortization for period]=! reserves at the beginning of period
which has a better IRR Project 1 Year Cashflows Discount Rate 10% 0 $ (750,000.00) 1 $ 250,000.00 2 $ 300,000.00 3 $ 350,000.00 4 $ 200,000.00 5 $ 100,000.00 Project 2 Year Cashflows Discount Rate 10% 0 $ (1,000,000.00) 1 $ 200,000.00 2 $ 300,000.00 3 $ 400,000.00 4 $ 500,000.00 5 $ 700,000.00
Clearcast Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated operating income, and net cash flow for each proposal are as follows: Operating Income Net Cash Flow Investment Year Proposal A: $450,000 $ 30,000 1 $120,000 2 30,000 120,000 3 20,000 110,000 4 10,000 100,000 (30,000) $ 60,000 $ 60,000 40,000 60,000 $510,000 $100,000 Proposal B: $200,000 1 80,000 3 20,000 60,000 4 (10,000) 30,000 (20.000) $ 90,000 20.000 $290,000 (Continued)
Project A has the following estimated cash flows and present values:Year Cash flow $ Discount factor@ 12% Present value $0 Cost (95 000) 1.0 (95 000) 1–5 Contributionper annum 50 000 3.605 180 250 1–5 Fixed costsper annum (25 000) 3.605 (90 125) 5 Residual value 20 000 0.567 11 340 The benefit of using sensitivity analysis in an investment appraisal would be:
What is the IRR for this project? Year Cash Flow in $ 0 ($1000) 1 400 2 400 3 600
2. Calculating Project NPV The Fleming Company is considering a new investment. Financial projections for the investment are tabulated below. The corporate tax rate is 22 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. Investment Sales revenue Operating costs Depreciation Net working capital spending Year 0 $32,800 450 Year 1 Year 2 Year 3 Year 4 $14,200 2,100 8,200 175 $15,900 $15,700 2,100 2,100 8,200 8,200 250 275 $12,900 2,100 8,200 ? a. Compute the incremental net income of the investment for each year. b. Compute the incremental cash flows of the investment for each year. c. Suppose the appropriate discount rate is 12 percent. What is the NPV of the project?

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