Wizard Co. is considering a project that will require$650,000 in assets. The project will be financed with 100%equity. The company faces a tax rate of 40%. What will bethe ROE (return on equity) for this project if it produces anEBIT of -$40,000? When calculating the tax effects,assume that Wizard Co. as a whole will have a large,positive income this year.O -3.0%O -3.7%O -4.4%O -3.1%

Answered: Image /qna-images/answer/24d6454c-2964-49ca-97e7-3a7464f6c920.jpg

Answered: Wizard Co. is considering a project…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of dollars) of its profits and of its future investments in new plant and working capital: Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation Pretax profit Tax at 30% Investment Answer is complete but not entirely correct. a. Total value b. Laputa's equity $ 70 30 $ 40 12 9 428 257 X Year 2 $90 40 50 15 12 3 $105 From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financed 60% by equity and 40 % by debt. Its cost of equity is 11%, its debt yields 7%, and it pays corporate tax at 30%. 45 60 a. Estimate the company's total value.. Note: Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole amount. b. What is the value of Laputa's equity? Note: Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole amount.…
You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of dollars) of its profits and of its future investments in new plant and working capital: Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation Pretax profit Tax at 30% Investment Answer is complete but not entirely correct. a. Total value b. Laputa's equity 1 $ 86 26 60 18 15 $ $ Year 629 x 377 2 $ 106 36 70 21 18 3 $ 121 41 80 From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financed 60% by equity and 40 % by debt. Its cost of equity is 17%, its debt yields 8%, and it pays corporate tax at 30%. 24 21 a. Estimate the company's total value. Note: Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole amount. b. What is the value of Laputa's equity? Note: Do not round intermediate calculations. Enter your answer in millions rounded to the nearest…
Suppose that the marginal tax rate is 15%. If a farmer decides to purchase a combine it will increase his revenue by $6,000 per year, but it will also increase his expenses by $1,000 per year. The before tax rate on this investment is 25%. The life of this investment is 6 years. What is the present value of the after tax net return? $14,133 $12,544 $16,084 $13,706 None of the answers are correct
You are considering adding a new product to one of your firm’s existing product lines which will generate an additional $200,000 in sales per year and will have a margin of 50% (same as the existing group margin). This will entail an increase in Net Working Capital of $10,000 and an investment in property, plant, and equipment of $50,000 per year. Assuming the company pays no tax and any depreciation in that year is negligible, the annual change in Unlevered Free Cash Flows resulting from the addition of the product is: a $40,000 b $50,000 c $90,000 d $100,000 e $10,000
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Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of $1.49 million per year, growing at a rate of 2.3% per year. Goodyear has an equity cost of capital of 8.6%, a debt cost of capital of 6.7%, a marginal corporate tax rate of 34%, and a debt-equity ratio of 2.4. If the plant has average risk and Goodyear plans to maintain a constant debt-equity ratio, what after-tax amount must it receive for the plant for the divestiture to be profitable? A divestiture would be profitable if Goodyear received more than $ million after tax. (Round to one decimal place.)
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You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of dollars) of its profits and of its future investments in new plant and working capital: Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation Pretax profit Tax at 30% Investment Answer is complete but not entirely correct. a. Total value b. Laputa's equity 1 $ 73 33 40 $ $ 12 19 476 285 Year 2 $93 43 50 15 22 From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financed 60% by equity and 40% by debt. Its cost of equity is 18%, its debt yields 9%, and it pays corporate tax at 30%. 3 $ 108 48 60 18 25 a. Estimate the company's total value. Note: Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole amount. b. What is the value of Laputa's equity? Note: Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole…
Assume the hiking shoes division of the all about shoes corporation had the following results last year (in thousands). Managements target rate of return is 15% and the weighted average cost of capital is 25%, it's effective tax rate is 30%.
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Finnegan Company plans to Invest In a new operating plant that Is expected to cost $500,000. The projected Incremental Income from the Investment Is as follows: Net Income Year After Tax 1 $30,000 $45,000 $50,000 $55,000 $40,000 $20,000 The unadjusted rate of return on the Inltial Investment would be approximately. Multiple Choice 80% 6.0%. 16.7% 48.0%

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