The unlevered cost of capital for Company AL. Introduction: The unlevered cost of capital is an assessment that uses either an actual debt-free or a hypothetical to measure a firm’s cost to implement a particular capital project. The unlevered cost of capital must demonstrate the project is less expensive than a levered cost of capital.

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Answer 1

Question

Chapter 18, Problem 9P

a)

Summary Introduction

To determine: The unlevered cost of capital for Company AL.

Introduction:

The unlevered cost of capital is an assessment that uses either an actual debt-free or a hypothetical to measure a firm’s cost to implement a particular capital project. The unlevered cost of capital must demonstrate the project is less expensive than a levered cost of capital.

b)

Summary Introduction

To determine: The unlevered value for the project.

Introduction:

Unlevered cost of capital is an assessment that uses either an actual debt-free or a hypothetical to measure a firm’s cost to implement a particular capital project. The unlevered cost of capital must demonstrate the project is less expensive than a levered cost of capital.

c)

Summary Introduction

To determine: The interest tax shield for the project and the present values.

Introduction:

An interest tax shield is a deduction in taxable income for a corporation or an individual achieved through claiming deduction such as depreciation, charitable donations, and mortgage interest. Tax shield lowers the overall cost of taxes owned by the individual taxpayer.

The present value is the existing value of a future amount of money or stream of cash flows that gives a stated rate of return.

d)

Summary Introduction

To determine: The average presented value (APV) for Company AL using WACC method.

Introduction:

Weighted Average Cost of Capital (WACC) is the rate at which a company is expected to pay, on an average, to all the security holders in order to finance its assets.

An adjusted present value (APV) is the net present value of a project if financed exclusively by equity plus the present value of any financing welfares that are the additional effect of debt.

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General Finance Question

Consider the following simplified financial statements for the Yoo Corporation (assuming no income taxes): Income Statement Balance Sheet Sales Costs $ 40,000 Assets 34,160 $26,000 Debt Equity $ 7,000 19,000 Net income $ 5,840 Total $26,000 Total $26,000 The company has predicted a sales increase of 20 percent. Assume Yoo pays out half of net income in the form of a cash dividend. Costs and assets vary with sales, but debt and equity do not. Prepare the pro forma statements. (Input all amounts as positive values. Do not round intermediate calculations and round your answers to the nearest whole dollar amount.) Pro forma income statement Sales Costs $ 48000 40992 Assets $ 31200 Pro forma balance sheet Debt 7000 Equity 19000 Net income $ 7008 Total $ 31200 Total 30304 What is the external financing needed? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign.) External financing needed $ 896

Answer 2

Question

Chapter 18, Problem 9P

a)

Summary Introduction

To determine: The unlevered cost of capital for Company AL.

Introduction:

The unlevered cost of capital is an assessment that uses either an actual debt-free or a hypothetical to measure a firm’s cost to implement a particular capital project. The unlevered cost of capital must demonstrate the project is less expensive than a levered cost of capital.

b)

Summary Introduction

To determine: The unlevered value for the project.

Introduction:

Unlevered cost of capital is an assessment that uses either an actual debt-free or a hypothetical to measure a firm’s cost to implement a particular capital project. The unlevered cost of capital must demonstrate the project is less expensive than a levered cost of capital.

c)

Summary Introduction

To determine: The interest tax shield for the project and the present values.

Introduction:

An interest tax shield is a deduction in taxable income for a corporation or an individual achieved through claiming deduction such as depreciation, charitable donations, and mortgage interest. Tax shield lowers the overall cost of taxes owned by the individual taxpayer.

The present value is the existing value of a future amount of money or stream of cash flows that gives a stated rate of return.

d)

Summary Introduction

To determine: The average presented value (APV) for Company AL using WACC method.

Introduction:

Weighted Average Cost of Capital (WACC) is the rate at which a company is expected to pay, on an average, to all the security holders in order to finance its assets.

An adjusted present value (APV) is the net present value of a project if financed exclusively by equity plus the present value of any financing welfares that are the additional effect of debt.

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Answer 3

Question

Chapter 18, Problem 9P

a)

Summary Introduction

To determine: The unlevered cost of capital for Company AL.

Introduction:

The unlevered cost of capital is an assessment that uses either an actual debt-free or a hypothetical to measure a firm’s cost to implement a particular capital project. The unlevered cost of capital must demonstrate the project is less expensive than a levered cost of capital.

b)

Summary Introduction

To determine: The unlevered value for the project.

Introduction:

Unlevered cost of capital is an assessment that uses either an actual debt-free or a hypothetical to measure a firm’s cost to implement a particular capital project. The unlevered cost of capital must demonstrate the project is less expensive than a levered cost of capital.

c)

Summary Introduction

To determine: The interest tax shield for the project and the present values.

Introduction:

An interest tax shield is a deduction in taxable income for a corporation or an individual achieved through claiming deduction such as depreciation, charitable donations, and mortgage interest. Tax shield lowers the overall cost of taxes owned by the individual taxpayer.

The present value is the existing value of a future amount of money or stream of cash flows that gives a stated rate of return.

d)

Summary Introduction

To determine: The average presented value (APV) for Company AL using WACC method.

Introduction:

Weighted Average Cost of Capital (WACC) is the rate at which a company is expected to pay, on an average, to all the security holders in order to finance its assets.

An adjusted present value (APV) is the net present value of a project if financed exclusively by equity plus the present value of any financing welfares that are the additional effect of debt.

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Answer 4

Question

Chapter 18, Problem 9P

a)

Summary Introduction

To determine: The unlevered cost of capital for Company AL.

Introduction:

The unlevered cost of capital is an assessment that uses either an actual debt-free or a hypothetical to measure a firm’s cost to implement a particular capital project. The unlevered cost of capital must demonstrate the project is less expensive than a levered cost of capital.

b)

Summary Introduction

To determine: The unlevered value for the project.

Introduction:

Unlevered cost of capital is an assessment that uses either an actual debt-free or a hypothetical to measure a firm’s cost to implement a particular capital project. The unlevered cost of capital must demonstrate the project is less expensive than a levered cost of capital.

c)

Summary Introduction

To determine: The interest tax shield for the project and the present values.

Introduction:

An interest tax shield is a deduction in taxable income for a corporation or an individual achieved through claiming deduction such as depreciation, charitable donations, and mortgage interest. Tax shield lowers the overall cost of taxes owned by the individual taxpayer.

The present value is the existing value of a future amount of money or stream of cash flows that gives a stated rate of return.

d)

Summary Introduction

To determine: The average presented value (APV) for Company AL using WACC method.

Introduction:

Weighted Average Cost of Capital (WACC) is the rate at which a company is expected to pay, on an average, to all the security holders in order to finance its assets.

An adjusted present value (APV) is the net present value of a project if financed exclusively by equity plus the present value of any financing welfares that are the additional effect of debt.

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Answer 5

Chapter 18, Problem 9P

a)

Summary Introduction

To determine: The unlevered cost of capital for Company AL.

Introduction:

The unlevered cost of capital is an assessment that uses either an actual debt-free or a hypothetical to measure a firm’s cost to implement a particular capital project. The unlevered cost of capital must demonstrate the project is less expensive than a levered cost of capital.

b)

Summary Introduction

To determine: The unlevered value for the project.

Introduction:

Unlevered cost of capital is an assessment that uses either an actual debt-free or a hypothetical to measure a firm’s cost to implement a particular capital project. The unlevered cost of capital must demonstrate the project is less expensive than a levered cost of capital.

c)

Summary Introduction

To determine: The interest tax shield for the project and the present values.

Introduction:

An interest tax shield is a deduction in taxable income for a corporation or an individual achieved through claiming deduction such as depreciation, charitable donations, and mortgage interest. Tax shield lowers the overall cost of taxes owned by the individual taxpayer.

The present value is the existing value of a future amount of money or stream of cash flows that gives a stated rate of return.

d)

Summary Introduction

To determine: The average presented value (APV) for Company AL using WACC method.

Introduction:

Weighted Average Cost of Capital (WACC) is the rate at which a company is expected to pay, on an average, to all the security holders in order to finance its assets.

An adjusted present value (APV) is the net present value of a project if financed exclusively by equity plus the present value of any financing welfares that are the additional effect of debt.

Answer 6

Chapter 18, Problem 9P

a)

Summary Introduction

To determine: The unlevered cost of capital for Company AL.

Introduction:

The unlevered cost of capital is an assessment that uses either an actual debt-free or a hypothetical to measure a firm’s cost to implement a particular capital project. The unlevered cost of capital must demonstrate the project is less expensive than a levered cost of capital.

Answer 7

Chapter 18, Problem 9P

a)

Summary Introduction

To determine: The unlevered cost of capital for Company AL.

Introduction:

The unlevered cost of capital is an assessment that uses either an actual debt-free or a hypothetical to measure a firm’s cost to implement a particular capital project. The unlevered cost of capital must demonstrate the project is less expensive than a levered cost of capital.

Answer 8

b)

Summary Introduction

To determine: The unlevered value for the project.

Introduction:

Unlevered cost of capital is an assessment that uses either an actual debt-free or a hypothetical to measure a firm’s cost to implement a particular capital project. The unlevered cost of capital must demonstrate the project is less expensive than a levered cost of capital.

Answer 9

b)

Summary Introduction

To determine: The unlevered value for the project.

Introduction:

Unlevered cost of capital is an assessment that uses either an actual debt-free or a hypothetical to measure a firm’s cost to implement a particular capital project. The unlevered cost of capital must demonstrate the project is less expensive than a levered cost of capital.

Answer 10

c)

Summary Introduction

To determine: The interest tax shield for the project and the present values.

Introduction:

An interest tax shield is a deduction in taxable income for a corporation or an individual achieved through claiming deduction such as depreciation, charitable donations, and mortgage interest. Tax shield lowers the overall cost of taxes owned by the individual taxpayer.

The present value is the existing value of a future amount of money or stream of cash flows that gives a stated rate of return.

Answer 11

c)

Summary Introduction

To determine: The interest tax shield for the project and the present values.

Introduction:

An interest tax shield is a deduction in taxable income for a corporation or an individual achieved through claiming deduction such as depreciation, charitable donations, and mortgage interest. Tax shield lowers the overall cost of taxes owned by the individual taxpayer.

The present value is the existing value of a future amount of money or stream of cash flows that gives a stated rate of return.

Answer 12

d)

Summary Introduction

To determine: The average presented value (APV) for Company AL using WACC method.

Introduction:

Weighted Average Cost of Capital (WACC) is the rate at which a company is expected to pay, on an average, to all the security holders in order to finance its assets.

An adjusted present value (APV) is the net present value of a project if financed exclusively by equity plus the present value of any financing welfares that are the additional effect of debt.

Answer 13

d)

Summary Introduction

To determine: The average presented value (APV) for Company AL using WACC method.

Introduction:

Weighted Average Cost of Capital (WACC) is the rate at which a company is expected to pay, on an average, to all the security holders in order to finance its assets.

An adjusted present value (APV) is the net present value of a project if financed exclusively by equity plus the present value of any financing welfares that are the additional effect of debt.

Answer 14

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Answer 17

Ch. 18.1 - What are the three methods we can use to include...Ch. 18.1 - Prob. 2CC Ch. 18.2 - Prob. 1CC Ch. 18.2 - Prob. 2CC Ch. 18.3 - Prob. 1CC Ch. 18.3 - Prob. 2CC Ch. 18.4 - Prob. 1CC Ch. 18.4 - Prob. 2CC Ch. 18.5 - How do we estimate a projects unlevered cost of...Ch. 18.5 - What is the incremental debt associated with a...

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