ZuoTi.Pro
Question

A firm is considering a project that will generate perpertual after-tax cash flows of 25,000 per...

A firm is considering a project that will generate perpertual after-tax cash flows of 25,000 per year beginning next year. The project has the same risk as the firm's overall operations. Equity cost 15%and debt cost 6% on an after-tax basis. The firm's D/E ratio is 1.2. What is the most the firm can pay for the project and still earn its required return?

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

Homework Answers

Answer #1

Cost % Market value | 15.00% S Weights | WACC (Cost % Weights) 8.18% 2 Equity 0.55 4 5 Debt (After tax cost) | 6.00%) $ 0.45

0 1
Add a comment
Know the answer?
Add Answer to:
A firm is considering a project that will generate perpertual after-tax cash flows of 25,000 per...
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

  • A firm is considering a project that will generate perpetual after-tax cash flows of $17,000 per year beginning next...

    A firm is considering a project that will generate perpetual after-tax cash flows of $17,000 per year beginning next year. The project has the same risk as the firm’s overall operations and must be financed externally. Equity flotation costs 15 percent and debt issues cost 4 percent on an after-tax basis. The firm’s D/E ratio is 0.5. What is the most the firm can pay for the project and still earn its required return? (Do not round intermediate calculations. Round...

  • Speedy Computers, Inc. is considering a new project that costs $50 million. The project will generate...

    Speedy Computers, Inc. is considering a new project that costs $50 million. The project will generate after-tax (year-end) cash flows or $8 million for ten years. The firm has a debt- to-equity ratio of 2/3. The equity beta for Speedy is 1.75. The expected return on the market is 12 percent and the risk- free rate is 4 percent. The cost of debt is 7.5 percent. corporate tax rate is 40 percent. The project has the same risk of the...

  • 2) KAYNE Inc. is considering a new project that costs $50 million. The project will generate...

    2) KAYNE Inc. is considering a new project that costs $50 million. The project will generate after-tax (year-end) cash flows of $10 million for the first three years (t = 1, 2, 3), $13 million for the following two years (t = 4, 5), and $12.5 million for the last three years (t= 6, 7, 8). The firm has a debt-equity ratio of 0.50. This firm has a beta of 1.8 and its cost of debt is 10 percent. Suppose...

  • 11-23 Floatation cost. Please use Excel to show formula. 11-22 WACC Weights WhackAmOle has 2 million...

    11-23 Floatation cost. Please use Excel to show formula. 11-22 WACC Weights WhackAmOle has 2 million shares of common stock outstanding, 1.5 million shares of preferred stock outstanding, and 50,000 bonds. If the common shares are selling for $63 per share, the preferred shares are selling for $52 per share, and the bonds are selling for 103 percent of par, what would be the weights used in the calculation of WhackAmOle's WACC? (LG11-4) 11-23 Flotation Cost Suppose that Brown-Murphies' common...

  • Zeta Corporation is considering a project that costs $18,000,000 and will increase the after-tax cash flows...

    Zeta Corporation is considering a project that costs $18,000,000 and will increase the after-tax cash flows by $4,000,000 per year for five years. The company has total assets of $80,000,000 and total debt of $20,000,000. The borrowing rate is 10 percent, the corporate tax rate is 21%, the risk-free rate is 3%, the beta of the stock is 1.5, and the return on the market is 12 percent The percent of debt in the capital structure is The cost of...

  • A large pet-food manufacturer is considering buying a small boutique cat food business to add to...

    A large pet-food manufacturer is considering buying a small boutique cat food business to add to their portfolio of pet foods. The head of the finance division has approached you to conduct a financial analysis to determine the most the firm should pay for the cat food business. The valuation of the cat-food business is based on cash flows of $180,500 per year over a five year period. The target business has the same risk as the firm’s overall operations....

  • Question 5 You are considering a project with the following after-tax cash flows (in millions of...

    Question 5 You are considering a project with the following after-tax cash flows (in millions of dollars): Years from Now           After-tax CF             0                      -50                   1-4                   10             5                      30    Suppose the project is only financed by equity and its beta is 1.2. Given Rf = 3% and E(RM) = 10%, you’d use the CAPM to estimate the (equity) cost of capital. What is the NPV of the project? ______ millions

  • A project is expected to generate the following cash flows: Year Project after-tax cash flows -$350...

    A project is expected to generate the following cash flows: Year Project after-tax cash flows -$350 150 -25 300 The project's cost of capital is 10%, calculate this project’s MIRR.

  • A firm is considering a new project that will generate cash revenue of $1,300,000 and cash expens...

    Urgent!!! Please answer within one hour. A firm is considering a new project that will generate cash revenue of $1,300,000 and cash expenses of $750,000 per year for five years. The equipment necessary for the project will cost $250,000 and will be depreciated straight line over four years. What is the expected free cash flow in the second year of the project if the firm's marginal tax rate is 35%? O A. $455.250 B. $316,875 O C. $341,438 O D....

  • A firm is considering a new project that will generate cash revenue of $1,300,000 and cash...

    A firm is considering a new project that will generate cash revenue of $1,300,000 and cash expenses of $700,000 per year for five years. The equipment necessary for the project will cost $300,000 and will be depreciated straight-line over four years. What is the NPV if the firm's marginal tax rate is 35% and discount rate is 10%?

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