2. A car company currently has capital stock of $100 million and desires a capital stock...
2. A car company currently has capital stock of $100 million and desires a capital stock of $110 million.
a. If it experiences no depreciation, how much will it need to invest to get to its desired level of capital stock?
b. If its annual depreciation is 5%, how much will it need to invest to get to its desired level?
c. If its annual depreciation is 10%, how much will it need to invest to get to its desired level?
3. Burger World is contemplating installing an automated ordering system. The ordering system will allow Burger World to permanently replace five employees for an annual (and permanent) cost savings of $100,000.
a. If the automated system cost $1,000,000, what is the rate of return on the investment?
b. If the system cost $2,000,000, what would be its rate of return?
c. If the government were to introduce an investment tax credit that allows firms to deduct 10% of its investment from its tax liability, what would happen to the rate of return if the system costs $1,000,000?
Homework Answers
NOTE - AS PER HOMEWORKLIB RULES I CAN SOLVE TOP MAIN QUE AND SUB PART .PLEASE POST SEPARTELY
THANK YOU HAVE A NICE DAY
Add Answer to:
2. A car company currently has capital stock of $100 million and
desires a capital stock...
ABC Company has an investment proposal. It requires an initial capital outlay of $20 million. The...
ABC Company has an investment proposal. It requires an initial capital outlay of $20 million. The investment will increase revenue by $10 million, increase cash expenses by $2 million and noncash depreciation expense by $5 million each year for the next five years. ABC has a tax rate of 30% and a cost of capital of 10%. 1. Determine the cash flow of the investment. 2. Determine the net present value of the investment. Should the investment be accepted? 3....
A firm has the following capital structure: £100 million of equity (market value) with 100 million...
A firm has the following capital structure: £100 million of equity (market value) with 100 million shares outstanding, and £100 million of debt. The beta of the firm’s stock is 1.6. The firm’s cost of equity is 10 percent, and the yield on riskless bonds is 2 percent. There is no tax. Assuming that the firm can borrow at the risk-free rate and that both CAPM (Capital Asset Pricing Model) and the Modigliani-Miller theorem hold, answer the following questions. i)...
On January 1, the total market value of the Tysseland Company was $60 million. During the...
On January 1, the total market value of the Tysseland Company was $60 million. During the year, the company plans to raise and invest $25 million in new projects. The firm's present market value capital structure, shown below, is considered to be optimal. Debt Common equity Total capital $30,000,000 30,000,000 $60,000,000 The current price of firm's 15-year, 12% coupon, semiannual payment noncallable bonds is $1,153.72. New bonds will be privately placed with no flotation cost. Common stock is currently selling...
1. Consider a neo-classical investment model with depreciable capital and a corporate income tax ...
1. Consider a neo-classical investment model with depreciable capital and a corporate income tax system where is the corporate tax rate, α is the tax depreciation (CCA) rate, and k is the investment tax credit (ITC) rate. The share of investment financed by debt is B, the economic depreciation rate is 6, the interest rate on debt is i, the required rate of return on equity is p, and the price of a unit of output and capital are both...
1. Consider a neo-classical investment model with depreciable capital and a corporate incorne tax...
1. Consider a neo-classical investment model with depreciable capital and a corporate incorne tax system where u is the corporate tax rate, α is the tax depreciation (CCA) rate, and k is the investment tax credit (ITC) rate. The share of investment financed by debt is β, the economic depreciation rate is δ, the interest rate on debt is i, the required rate of return on equity is ρ, and the price of a unit of output and capital are...
You plan to invest in the Kish Hedge Fund, which has total capital of R500 million...
You plan to invest in the Kish Hedge Fund, which has total capital of R500 million invested in five stocks: Stock Investment Stock's Beta Coefficient A 160 million 0.5 B 120 million 1.2 C 80 million 1.8 D 80 million 1.0 E 60 million 1.6 Kish's beta coefficient can be found as a weighted average of its stocks' betas. The risk-free rate is 6%, and you believe the following probability distribution for future market returns is realistic: Probability Market Return...
c) A firm has the following capital structure: £100 million of equity (market value) with 100...
c) A firm has the following capital structure: £100 million of equity (market value) with 100 million shares outstanding, and £100 million of debt. The beta of the firm’s stock is 1.6. The firm’s cost of equity is 10 percent, and the yield on riskless bonds is 2 percent. There is no tax. Assuming that the firm can borrow at the risk free rate and that both CAPM (Capital Asset Pricing Model) and the Modigliani-Miller theorem hold, answer the following...
1. Consider a neo-classical investment model with depreciable capital and a corporate income tax ...
1. Consider a neo-classical investment model with depreciable capital and a corporate income tax system where u is the corporate tax rate, oa is the tax depreciation (CCA) rate, and k is the investment tax credit (ITC) rate. The share of investment financed by debt is B, the economic depreciation rate is 6, the interest rate on debt is i, the required rate of return on equity is ρ, and the price of a unit of output and capital are...
KKK is currently unlevered and is valued at $5 million. The company is considering including debt...
KKK is currently unlevered and is valued at $5 million. The company is considering including debt in its capital structure and would like to know the likely impact on its value and cost of capital. The current cost of equity is 12 percent. The firm is considering offering $2 million of new debt with an interest rate of 7 percent. The KKK will use the proceeds of the debt issue to repurchase stock. There are currently 1,000,000 shares outstanding and...
Tartan Industries currently has total capital equal to $9 million, has zero debt, is in the...
Tartan Industries currently has total capital equal to $9 million, has zero debt, is in the 25% federal-plus-state tax bracket, has a net income of $3 million, and distributes 40% of its earnings as dividends. Net income is expected to grow at a constant rate of 5% per year, 480,000 shares of stock are outstanding, and the current WACC is 13.40%. The company is considering a recapitalization where it will issue $2 million in debt and use the proceeds to...
ABC Company has an investment proposal. It requires an initial capital outlay of $20 million. The investment will increase revenue by $10 million, increase cash expenses by $2 million and noncash depreciation expense by $5 million each year for the next five years. ABC has a tax rate of 30% and a cost of capital of 10%. 1. Determine the cash flow of the investment. 2. Determine the net present value of the investment. Should the investment be accepted? 3....
On January 1, the total market value of the Tysseland Company was $60 million. During the year, the company plans to raise and invest $25 million in new projects. The firm's present market value capital structure, shown below, is considered to be optimal. Debt Common equity Total capital $30,000,000 30,000,000 $60,000,000 The current price of firm's 15-year, 12% coupon, semiannual payment noncallable bonds is $1,153.72. New bonds will be privately placed with no flotation cost. Common stock is currently selling...
1. Consider a neo-classical investment model with depreciable capital and a corporate income tax system where is the corporate tax rate, α is the tax depreciation (CCA) rate, and k is the investment tax credit (ITC) rate. The share of investment financed by debt is B, the economic depreciation rate is 6, the interest rate on debt is i, the required rate of return on equity is p, and the price of a unit of output and capital are both...
1. Consider a neo-classical investment model with depreciable capital and a corporate incorne tax system where u is the corporate tax rate, α is the tax depreciation (CCA) rate, and k is the investment tax credit (ITC) rate. The share of investment financed by debt is β, the economic depreciation rate is δ, the interest rate on debt is i, the required rate of return on equity is ρ, and the price of a unit of output and capital are...
1. Consider a neo-classical investment model with depreciable capital and a corporate income tax system where u is the corporate tax rate, oa is the tax depreciation (CCA) rate, and k is the investment tax credit (ITC) rate. The share of investment financed by debt is B, the economic depreciation rate is 6, the interest rate on debt is i, the required rate of return on equity is ρ, and the price of a unit of output and capital are...
Tartan Industries currently has total capital equal to $9 million, has zero debt, is in the 25% federal-plus-state tax bracket, has a net income of $3 million, and distributes 40% of its earnings as dividends. Net income is expected to grow at a constant rate of 5% per year, 480,000 shares of stock are outstanding, and the current WACC is 13.40%. The company is considering a recapitalization where it will issue $2 million in debt and use the proceeds to...
Most questions answered within 3 hours.
-
In this exercise, we will be refactoring a working program. Code
refactoring is a process to...
asked 1 hour ago -
3
researchers at Cambrige looked at 5,000 firms in Englans and found
that, in terms of...
asked 1 hour ago -
why it is important and how it integrates within ERP? And what
the core challenges of...
asked 3 hours ago -
A strawberry farmer determines that the average weight of
individual strawberries produced by plants in his...
asked 3 hours ago -
Chargaff's results yielded a molar ratio of 0.400 for A to G in
avian tubercle bacillus...
asked 5 hours ago -
Which of the following binds ATP/ADP?
a. microfilaments
b. microtubules
c. intermediate filaments
d. microfilaments and...
asked 5 hours ago -
Assume that the situation can be expressed as a linear cost
function. Find the cost function....
asked 7 hours ago -
(Sort ArrayList) Write the following method that sorts an
ArrayList: public static > void sort(ArrayList list)...
asked 8 hours ago -
2) A 9 volt battery is connected to a parallel plate capacitor
with an initial capacitance...
asked 7 hours ago -
Prince Equipment has to decide whether to obtain $1,000,000 of
financing by: (1) selling common stock...
asked 8 hours ago -
The terms electrical and electronic have similar but
different meanings which of the following statement is...
asked 8 hours ago -
You wish to test the claim that the mean GPA of night students
is than 2.5...
asked 9 hours ago