Consider a firm whose only asset is a plot of vacant land, and whose only liability...
Consider a firm whose only asset is a plot of vacant land, and whose only liability is debt of $15 million due in one year. If left vacant, the land will be worth $10.1 million in one year. Alternatively, the firm can develop the land at an upfront cost of $19.6 million. The developed land will be worth $34.3 million in one year. Suppose the risk-free interest rate is 9.9%, assume all cash flows are risk-free, and assume there are...
Consider a firm whose only asset is a plot of vacant land, and whose only liability is debt of $14.6 million due in one year. If left vacant, the land will be worth $10.4 million in one year. Alternatively, the firm can develop the land at an up-front cost of $20.1 million. The developed the land will be worth $34.3 million in one year. Suppose the risk-free interest rate is 10.5 %, cash flows are risk-free, and there are no...
10. Consider a firm whose only asset is a plot of vacant land, and whose only liability is debt of $15.1 million due in one year. If left vacant, the land will be worth $9.6 million in one year. Alternatively, the firm can develop the land at an upfront cost of $19.6 million. The developed the land will be worth $34.2 million in one year. Suppose the risk-free interest rate is 10.1%, all cash flows are risk-free, and there are...
Consider a firm whose only asset is a plot of vacant land, and whose only liability is debt of $15 million due in one year. If left vacant, the land will be worth $10 million in one year. Alternatively, the firm can develop the land at an upfront cost of $20 million. The developed land will be worth $35 million in one year. Suppose the risk-free interest rate is 10%, assume all cash flows are risk-free, and assume there are...
Market return and beta of equity are not given in this
question.
Consider a firm whose only asset is a plot of vacant land, and whose only liability is debt of $15.3 million due in one year. If left vacant, the land will be worth $9.7 million in one year. Alternatively, the firm can develop the land at an up-front cost of $19.9 million. The developed the land will be worth $35.8 million in one year. Suppose the risk-free interest...
Suppose the corporate tax rate is 21%. Consider a firm that earns $1,500 before interest and taxes each year with no risk. The firm's capital expenditures equal its depreciation expenses each year, and it will have no changes to its net working capital. The risk-free interest rate is 6%. a. Suppose the firm has no debt and pays out its net income as a dividend each year. What is the value of the firm's equity? b. Suppose instead the firm...
Suppose the corporate tax rate is 21 %. Consider a firm that earns $1,500 before interest and taxes each year with no risk. The firm's capital expenditures equal its depreciation expenses each year, and it will have no changes to its net working capital. The risk-free interest rate is 7 %. a. Suppose the firm has no debt and pays out its net income as a dividend each year. What is the value of the firm's equity? b. Suppose instead...
You run a construction firm. You have just won a contract to build a government office complex. Building it will require an investment of $10.2 million today and $4.5 million in one year. The government will pay you $20.2 million in one year upon the building's completion. Suppose the interest rate is 10.3%. a. What is the NPV of this opportunity? b. How can your firm turn this NPV into cash today?
Consider a project with a free cash flows in one year of 149,546 or 179,003, with each of outcome being equally likely, the initial investment required for the project is 93,227 and the project's cost of capital is 17%, the risk-free interest rate is 7%. e funds f A) What is the NVP of this project B) Suppose that to raise the funds for the initial investment the project is sold to investors as an all-equity firm. The equity holders...
Wolfrum Technology (WT) has no debt. Its assets will be worth $422 million one year from now if the economy is strong, but only $233 million in one year if the economy is weak. Both events are equally likely. The market value today of its assets is $259 million.a. What is the expected return of WT stock without leverage?b. Suppose the risk-free interest rate is 5%. If WT borrows $54 million today at this rate and uses the proceeds to pay an immediate cash dividend,...