ZuoTi.Pro
Question

1. Chef wants to diversify with a new line of cooking utensils. The project costs $25...

1. Chef wants to diversify with a new line of cooking utensils. The project costs $25 million and generates earnings before interest and taxes (EBIT) of $3,600,000 every year forever. The unlevered cost of capital is 11%. They will issue $15 million in debt with an interest rate of 8%. The debt is never repaid. The tax rate is 30%. The debt ratio (debt to value) is 60%. Use flow-to-equity (FTE) to find the project’s value.

Unless stated otherwise, compounding is annual and payments occur at the end of the period.

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1
1] Value of levered equity = 11%+(11%-8%)*(1-30%)*0.6/0.4 = 14.15%
2] EBIT $       36,00,000
Less: Interest on pepetual debt = 15000000*8% = $       12,00,000
EBT $       24,00,000
Tax at 30% $         7,20,000
NI $       16,80,000
3] Project's value = 1680000/14.15% = $   1,18,72,792
0 0
Add a comment
Know the answer?
Add Answer to:
1. Chef wants to diversify with a new line of cooking utensils. The project costs $25...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • 8. (10) Teton wants to diversify with a new line of cooking utensils. The project costs...

    8. (10) Teton wants to diversify with a new line of cooking utensils. The project costs $24 million and generates earnings before interest and taxes (EBIT) of $3,600,000 every year forever. The unlevered cost of capital is 12%. Titan will issue $10 million in debt with an interest rate of 8%. Tax rate is 25%. Debt ratio (debt to value) is 40%. Calculate the value of the project using flow-to-equity (FTE).

  • Brand Corp. is currently unlevered. The firm has $960,000 in earnings before interest and taxes (EBIT)...

    Brand Corp. is currently unlevered. The firm has $960,000 in earnings before interest and taxes (EBIT) and the unlevered cost of capital is 12%. The firm wants to issue $1,600,000 in debt to repurchase stock. The perpetual bonds have a 5% yield. The tax rate is 25%. Find the value of the levered firm (Vl). For the levered firm, find the cost of equity.    Unless stated otherwise, compounding is annual and payments occur at the end of the period.

  • 1. Night Inc. has unlevered cash flows of $1,470,000 each year in perpetuity. The unlevered cost...

    1. Night Inc. has unlevered cash flows of $1,470,000 each year in perpetuity. The unlevered cost of capital (ru) is 14%. The firm plans to issue $6 million in perpetual debt with a return of 8% (to repurchase stock). The tax rate is 25%. If the value of the levered firm is $11,500,000, use the trade-off theory to find the present value of the financial distress costs.   Unless stated otherwise, compounding is annual and payments occur at the end of...

  • Sail Inc. is considering a new project. The equipment costs $42M, will be depreciated on a...

    Sail Inc. is considering a new project. The equipment costs $42M, will be depreciated on a straight-line basis over 3 years to a zero book value and can be sold for 5M at the end of 3 years. It will generate earnings before interest and taxes (EBIT) of 6M per year for 3 years. There is no net working capital expenditure. The tax rate is 25%. Sail has a target debt ratio (D/V) of 40% debt and the rest from...

  •   Unless stated otherwise, interest is compounded annually, and payments occur at the end of the period....

      Unless stated otherwise, interest is compounded annually, and payments occur at the end of the period. Face value for bonds is $1000. Brake Plus has a stock price of $30 per share with 12 million shares outstanding. There is 120 million in debt with a yield on debt of 4.6%. The equity beta for Brake is 1.20. The risk-free rate is 2.5% and the market risk premium is 6%. Carry all work to two decimal points (so XX.XX%) Use the...

  • 1. Billboard, Inc. is considering a new project costing $400 million. The project cost can be...

    1. Billboard, Inc. is considering a new project costing $400 million. The project cost can be depreciated on a straight-line over 20 years. Part of the cost of the project will be financed with a new bond issue. In order to finance a portion of new project, Billboard has sold for $93.54 million a twenty year, zero coupon bond with face value of $300 million. The issuance of debt will carry a one time cost at year 0 of $12.9...

  • lery A l add umbered problems appear in Append Problema 1-7 12 kell has tied operating costs of 4.0 and anables...

    lery A l add umbered problems appear in Append Problema 1-7 12 kell has tied operating costs of 4.0 and anables of $5 per unit. If it sells See on the product for $95 per unit what is the break-even quantity Detal Design (Disabeta of 0.75. The tax rate is 04 and DD is financed with 40% debt What is the company's unlevered beta? Ether Enterprise has an unlevered beta of 10 thier is financed with 50% debt and has...

  • I wanted to update you on my efforts to secure an increased line of credit for...

    I wanted to update you on my efforts to secure an increased line of credit for working capital. Despite my repeated efforts and the calls that both of you have made to our bank's senior officers, Miami Dade Merchant's Bank (MDM) continues to be inflexible. It refuses to increase our $3.2 million line of credit and says that it will not change its mind. It is also proposing tighter covenants. I have highlighted for MDM our improved EBIT and free...

  • 1) Emeco Holdings Limited (Emeco) is a company listed on the Australian Securities Exchange (ASX). Emeco...

    1) Emeco Holdings Limited (Emeco) is a company listed on the Australian Securities Exchange (ASX). Emeco is investigating a proposal to replace one of their outdated earth-moving excavators with a new CAT 390F excavator. The new excavator has a much larger carrying capacity, offers improved fuel economy and has lower maintenance costs compared to the existing excavator. However, the cost of a brand new CAT 390F is $2.8 million and Emeco’s accountant is concerned that the net profit of the...

  • I need Summary of this Paper i dont need long summary i need What methodology they used , what is the purpose of this p...

    I need Summary of this Paper i dont need long summary i need What methodology they used , what is the purpose of this paper and some conclusions and contributes of this paper. I need this for my Finishing Project so i need this ASAP please ( IN 1-2-3 HOURS PLEASE !!!) Budgetary Policy and Economic Growth Errol D'Souza The share of capital expenditures in government expenditures has been slipping and the tax reforms have not yet improved the income...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT