Problem 19-19 APV
Consider a project to produce solar water heaters. It requires a $10 million investment and offers a level after-tax cash flow of $1.64 million per year for 10 years. The opportunity cost of capital is 10.35%, which reflects the project’s business risk.
a. Suppose the project is financed with $4 million of debt and $6 million of equity. The interest rate is 6.55% and the marginal tax rate is 21%. An equal amount of the debt will be repaid in each year of the project's life.
Calculate APV. (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations. Round your answer to the nearest whole number.)
b. If the firm incurs issue costs of $650,000 to raise the $6 million of required equity, what will be the APV? (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations. Round your answer to the nearest whole number. Negative amount shoud be indicated by a minus sign.)
Homework Answers
Problem 19-16 APV
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n 2015 Beta Corporation earmed gross profits of $690,000 a. Suppose that it is financed by...
n 2015 Beta Corporation earmed gross profits of $690,000 a. Suppose that it is financed by a combination of common stock and $1.17 million of debt. The interest rate on the debt is 1 nearest whole dollar amount.) 2%, and the tax rate is 35%, How much profit is available for not round intermediate calculations. Enter your answer in dollars not millions and round your answer to the of common stock and $1.17 million of proferred stock. The dividend yield...
In 2015 Beta Corporation earned gross profits of $840,000. a. Suppose that it is financed by...
In 2015 Beta Corporation earned gross profits of $840,000. a. Suppose that it is financed by a combination of common stock and $1.08 million of debt. The interest rate on the debt is 9%, and the corporate tax rate is 35%. How much profit is available for common stockholders after payment of interest and corporate taxes? (Do not round intermediate calculations. Enter your answer in dollars not millions and round your answer to the nearest whole dollar amount.) Profit available...
Trower Corp. has a debt–equity ratio of .90. The company is considering a new plant that...
Trower Corp. has a debt–equity ratio of .90. The company is considering a new plant that will cost $105 million to build. When the company issues new equity, it incurs a flotation cost of 7.5 percent. The flotation cost on new debt is 3 percent. What is the initial cost of the plant if the company raises all equity externally? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer...
Bird Enterprises has no debt. Its current total value is $49.4 million. Assume debt proceeds are...
Bird Enterprises has no debt. Its current total value is $49.4 million. Assume debt proceeds are used to repurchase equity. a. Ignoring taxes, what will the company’s value be if it sells $19.6 million in debt? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, round your answer to the nearest whole number, e.g., 1,234,567.) b. Suppose now that the company’s tax rate is 22 percent. What will its overall value be if it...
Bird Enterprises has no debt. Its current total value is $48.4 million. Assume debt proceeds are...
Bird Enterprises has no debt. Its current total value is $48.4 million. Assume debt proceeds are used to repurchase equity. a. Ignoring taxes, what will the company's value be if it sells $19.1 million in debt? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, round your answer to the nearest whole number, e.g., 1,234,567.) b. Suppose now that the company's tax rate is 22 percent. What will its overall value be if it...
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Problem 18-12 APV MVP, Inc., has produced rodeo supplies for over 20 years. The company currently has a debt-equity ratio of 65 percent and the tax rate is 21 percent. The required return on the firm's levered equity is 14 percent. The company is planning to expand its production capacity. The equipment to be purchased is expected to generate the following unlevered cash flows: Year Cash Flow 0 $18,900,000 WN- 5,820,000 9,620,000 8,920,000 The company has arranged a debt issue...
n 2015 Beta Corporation earmed gross profits of $690,000 a. Suppose that it is financed by a combination of common stock and $1.17 million of debt. The interest rate on the debt is 1 nearest whole dollar amount.) 2%, and the tax rate is 35%, How much profit is available for not round intermediate calculations. Enter your answer in dollars not millions and round your answer to the of common stock and $1.17 million of proferred stock. The dividend yield...
Bird Enterprises has no debt. Its current total value is $48.4 million. Assume debt proceeds are used to repurchase equity. a. Ignoring taxes, what will the company's value be if it sells $19.1 million in debt? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, round your answer to the nearest whole number, e.g., 1,234,567.) b. Suppose now that the company's tax rate is 22 percent. What will its overall value be if it...
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