You are looking to purchase Company A. Your projections for the EBITDA of Company A are as Follows: EBITDA Year 1 $2.0 Year 2 $3.0 Year 3 $3.5 Year 4 $4.0 Year 5 $5.0 Your cost of capital is 20%. Your investment banker shows you the EBITDA multiples for the following comparable companies: Company x 5.0x

You are looking to purchase Company A. Your projections for the EBITDA of Company A are as Follows: EBITDA Year 1 $2.0 Year 2 $3.0 Year 3 $3.5 Year 4 $4.0 Year 5 $5.0 Your cost of capital is 20%. Your investment banker shows you the EBITDA multiples for the following comparable companies: Company x 5.0x

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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Similar questions

Assume that the company you chose in part a) has been researching the prospects for a range of new investmentopportunities. The cash flow details of two promising projects (which are mutually exclusive) are given below:Year Projected Cash Flows (£m) A B0 -85 -901 10 402 20 353 25 74 65 40Assume that the company’s cost of capital is currently at 10.25 per cent.Assume that all cash flows arise at year ends and straight-line depreciation is used over the life of the project with zeroscrap value. Ignore taxation and inflation.1. Calculate the Payback Period (PBP), Accounting Rate of Return (ARR) and the Net Present Value (NPV) ofthe project. Evaluate the results of these calculations and recommend with reasons which project should beadopted.
Subject:- finance
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 13 percent, and that the maximum allowable payback and discounted payback statistics for your company are 2.5 and 3.0 years, respectively. Time: 0 1 2 3 4 5 Cash flow: −$366,000 $64,900 $83,100 $140,100 $121,100 $80,300 Use the PI decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.) PI: _____.__
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3.0 and 3.5 years, respectively. 18 Ints Time: 1 4 5 Cash flow: $66, 400 $84,600 $141,600 $122,600 $81,800 $351,000 Print Use the NPV decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.) References NPV Should it be accepted or rejected? accepted O rejected
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 12 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3 and 3.5 years, respectively. Time: 0 1 2 3 4 5 Cash flow: −$260,000 $60,800 $79,000 $131,000 $117,000 $76,200 Use the MIRR decision rule to evaluate this project.
Quilts R Us (QRU) is considering an investment in a new patterning attachment with the cash flow profile shown in the table below. QRU’s MARR is 13.5%/year. Solve, a. What is the present worth of this investment? b. What is the decision rule for judging the attractiveness of investments based on present worth? c. Should QRU invest?
You have the following information about Burgundy Basins, a sink manufacturer. Equity shares outstanding Stock price per share Yield to maturity on debt Book value of interest-bearing debt Coupon interest rate on debt Market value of debt Book value of equity Cost of equity capital Tax rate a. What is the internal rate of return on the investment? Note: Round your answer to 2 decimal places. Internal rate of return 20 million Burgundy is contemplating what for the company is an average-risk investment costing $30 million and promising an annual ATCF of $4.5 million in perpetuity. % $ 35 7.5% $ 330 million 4.0% $225 million $370 million 11.0% 35%
Below are four cases that you will have to solve using Excel spreadsheets. 2nd case The COMPETIDORA SA company has the possibility of investing in three different projects . The projections show us the following information on which a decision must be made: PROJECT X Y Initial Z$310,000 It is requested: investment $180,000 $250,000 Year 1 cash flows $50,000 $80,000 $150,000 1. Determine the internal rate of return. 2. Determine the present value. Year 2 cash flows 3. Determine the recovery period. 4. Define which is the most viable project. $70,000 $80,000 $120,000 The discount rate for the project will be 9% and the investors propose a MARR of 22%. Year 3 cash flows $80,000 $80,000 $100,000 Year 4 cash flows $100,000 $80,000
An all-equity firm is considering the projects shown below. The T-bill rate is 4 percent and the market risk premium is 7 percent. Project Expected Return A Project A Project B Project C Project D 8.0% 19.0 13.0 17.0 Calculate the project-specific benchmarks for each project. (Round your answers to 1 decimal place.) O Project C O Project D Beta 0.5 1.2 1.4 % % % % If the firm uses its current WACC of 12 percent to evaluate these projects, which project(s), will be incorrectly accepted? O Project A O Project B
Here are data on two companies. The T-bill rate is 5.6% and the market risk premium is 7.1%. $1 Discount Store Everything $5 13% 18% Company Forecast return. Standard deviation of returns Beta Company $1 Discount Store Everything $5 Expected Return 14% 16% Required: What would be the expected rate of return for each company, according to the capital asset pricing model (CAPM)? (Round your answers to 2 decimal places.) % % 1.6 1.0
The following are two projects a firm is considering: Project B Cash Flow Year 0 1 2 3 4 $2,939.01 Assuming that the relevant cost of capital for both projects is 11%, you should be able to determine the net present value (NPV) and the internal rate of return (IRR) for both project. Assume now that the firm has capital rationing, but knows that its true reinvestment rate is 20%, while its cost of capital is 11 percent. Given this information, determine the modified net present value (MNPV) for Project B. O $2.479.00 O $2.965.10 O$3.479.89 Project A Cash Flow O $4,084.05 ($10,000.00) ($11,000.00) $3,000.00 $5,000.00 $4,000.00 $4,000 00 $5,000.00 $4,000.00 $2,000.00 $2,000.00
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3 and 3.5 years, respectively. Time: Cash flow: 0 1 -$233,000 $65,600 MIRR 2 $83,800 % 4 $140,800 $121,800 Use the MIRR decision rule to evaluate this project. Note: Do not round intermediate calculations and round your final answer to 2 decimal places. 5 $81,000

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