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unlevered net present value. (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)

unlevered net present value. (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)

Essentials Of Investments
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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The Papillon Corporation is considering launching a new project, and it would like to do the math to figure out if it is worth it. The Papillon Corporation has no loans, and currently its cost of equity is 10.9 %. The project would require an immediate investment of $11.46 million to buy production equipment. The equipment will depreciate according to the straight-line method, and its economic life is 6 years. The Papillon Corporation expects that this 6-year- long project would bring "revenues minus costs of goods sold" in the amount of $3.23 million each year. (Use the company's cost of equity to discount their after-tax values.) You also know that the T-Bill, or the risk-free, rate is 2.8 % per year. (Use this rate to discount the risk-free cash flows from this project, such as the annual "depreciation tax shields" (HINT: see Ch.6 PowerPoint!).) The Papillon Corporation faces a 22 % income tax rate. First, find the project's estimated unlevered cash flows, and then calculate the project's unlevered net present value. (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) Net present value
Transcribed Image Text:The Papillon Corporation is considering launching a new project, and it would like to do the math to figure out if it is worth it. The Papillon Corporation has no loans, and currently its cost of equity is 10.9 %. The project would require an immediate investment of $11.46 million to buy production equipment. The equipment will depreciate according to the straight-line method, and its economic life is 6 years. The Papillon Corporation expects that this 6-year- long project would bring "revenues minus costs of goods sold" in the amount of $3.23 million each year. (Use the company's cost of equity to discount their after-tax values.) You also know that the T-Bill, or the risk-free, rate is 2.8 % per year. (Use this rate to discount the risk-free cash flows from this project, such as the annual "depreciation tax shields" (HINT: see Ch.6 PowerPoint!).) The Papillon Corporation faces a 22 % income tax rate. First, find the project's estimated unlevered cash flows, and then calculate the project's unlevered net present value. (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) Net present value
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