Suppose Fried Fritters Ltd. pays a corporate tax rate of 30% and is financed as follows: • 30% senior secured debt with an annual yield of 4.8% • 10% unsecured junior debt with an annual yield of 9.9% • 50% common shares with an annual return on equity of 7.0% • 10% preferred shares with an annual return on equity of 8.0% The company is considering investing in a one-day training program for its chefs that will cost $10 million today, January 1. The trained chefs would then generate $1 million of extra revenue at the end of each year (December 31) for 16 years and then zero thereafter. Calculate the NPV of the program; type your answer in the box below, rounded to the nearest dollar.
Suppose Fried Fritters Ltd. pays a corporate tax rate of 30% and is financed as follows: • 30% senior secured debt with an annual yield of 4.8% • 10% unsecured junior debt with an annual yield of 9.9% • 50% common shares with an annual return on equity of 7.0% • 10% preferred shares with an annual return on equity of 8.0% The company is considering investing in a one-day training program for its chefs that will cost $10 million today, January 1. The trained chefs would then generate $1 million of extra revenue at the end of each year (December 31) for 16 years and then zero thereafter. Calculate the NPV of the program; type your answer in the box below, rounded to the nearest dollar.
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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Transcribed Image Text:Suppose Fried Fritters Ltd. pays a corporate tax rate of 30% and is
financed as follows:
• 30% senior secured debt with an annual yield of 4.8%
• 10% unsecured junior debt with an annual yield of 9.9%
• 50% common shares with an annual return on equity of 7.0%
• 10% preferred shares with an annual return on equity of 8.0%
The company is considering investing in a one-day training program for its
chefs that will cost $10 million today, January 1. The trained chefs would
then generate $1 million of extra revenue at the end of each year
(December 31) for 16 years and then zero thereafter.
Calculate the NPV of the program; type your answer in the box below,
rounded to the nearest dollar.
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