You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of dollars) of its profits and of its futureinvestments in new plant and working capital:Year1234Earnings before interest, taxes, depreciation, and amortization (EBITDA)Depreciation$ 75$ 95$ 110$ 11515253035Pretax profit60Tax at 30%18Investment17202227080802124242325From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financed40% by equity and 60% by debt. Its cost of equity is 16%, its debt yields 7%, and it pays corporate tax at 30%.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.a. Total valueb. Laputa's equity

Step 1: Question a and b: Step 2:Workings

Answered: You need to estimate the value of…

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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Dry-Sand Company is considering investing in a new project. The project will need an initial investment of $3,000,000 and will generate $1,800,000 (after-tax) cash flows for three years. Calculate the MIRR (modified internal rate of return) for the project if the cost of capital is 13%. 18.62% 23.43% 26.91% 28.72%
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Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $50,000 2 35,000 3 30,000 4 20,000 Thereafter 0 Expenses are expected to be 40% of revenues, and working capital required in each year is expected to be 20% of revenues in the following year. The product requires an immediate investment of $60,000 in plant and equipment. a. What is the initial investment in the product? Remember working capital. b. If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firm’s tax rate is 20%, what are the project cash flows in each year? Assume the plant and equipment are worthless at the end of 4 years. c. If the opportunity cost of capital is 10%, what is the project's NPV? d. What is the project IRR?
5.1.3 Calculate the Net Present Value of each project (with amounts rounded off to the nearest Rand). INFORMATION Zeda Enterprises has the option to invest in machinery in projects A and B but finance is only available to invest in one of them. You are given the following projected data: Initial cost Scrap value Depreciation per year Net profit Year 1 Year 2 Year 3 Year 4 Year 5 Net cash flows Year 1 Year 2 Year 3 Year 4 Year 5 Project A R300 000 R40 000 R52 000 R20 000 R30 000 R50 000 R60 000 R10 000 Project B R300 000 0 R60 000 R90 000 R90 000 R90 000 R90 000 R90 000
Based on the investor expectations of earning at least 12%, should this projected below be completed? Year 0 1 2 3 4 5 6 Cash Flow (133,000) 37,000 42,750 44,000 46,500 82,500 77,000 Please explain why or why not the company should move forward with this endeavor.
If you invested $180 million into a project today, and achieved operating cash flows of $50million, $30million, $40million, $80million, and $30million, how would you measure the following: a. NPV (assuming 7.8% cost of capital) b. IRR c. How would you mathematically and verbally describe NPV relative to the IRR?
Net present value method, internal rate of return method, and analysis for a service company The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: Year Wind Turbines Biofuel Equipment 1 $230,000 $410,000 2 230,000 410,000 3 230,000 410,000 4 230,000 410,000 The wind turbines require an investment of $698,510, while the biofuel equipment requires an investment of $1,170,550. No residual value is expected from either project. 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 Required: 1a. Compute the net present value for each project. Use a rate of…
GTO Incorporated is considering an investment costing $214,720 that results in net cash flows of $32,000 annually for 10 years. (PV of $1. FV of $1. PVA of $1, and EVA of $1) (Use appropriate factor(s) from the tables provided.) (a) What is the internal rate of return of this investment? (b) The hurdle rate is 8.5%. Should the company invest in this project on the basis of internal rate of return? a. Internal rate of return b. Should the company invest in this project on the basis of internal rate of return? %

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