Zoso is a rental car company that is trying to determine whether to add 25 cars to its fleet. The company fully depreciates all its rental cars over five years using the straight-line method. The new cars are expected to generate $165,000 per year in earnings before taxes and depreciation for five years. The company is entirely financed by equity and has a 38 percent tax rate. The required return on the company’s unlevered equity is 12 percent, and the new fleet will not change the risk of the company. The risk-free rate is 7 percent. |
a. |
What is the maximum price that the company should be willing to pay for the new fleet of cars if it remains an all-equity company? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
Maximum price | $ |
b. |
Suppose the company can purchase the fleet of cars for $415,000. Additionally, assume the company can issue $305,000 of five-year debt at the risk-free rate of 7 percent to finance the project. All principal will be repaid in one balloon payment at the end of the fifth year. What is the adjusted present value (APV) of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
APV | $ |
Zoso is a rental car company that is trying to determine whether to add 25 cars to its fleet. The company fully depreciates all its rental cars over five years using the straight-line method. The...
Benton is a rental car company that is trying to determine whether to add 25 cars to its fleet. The company fully depreciates all its rental cars over five years using the straight- line method. The new cars are expected to generate $205,000 per year in earnings before taxes and depreciation for five years. The company is entirely financed by equity and has a 24 percent tax rate. The required return on the company's unlevered equity is 13 percent and...
Benton is a rental car company that is trying to determine whether to add 25 cars to its fleet. The company fully depreciates all its rental cars over four years using the straight-line method. The new cars are expected to generate $245,000 per year in earnings before taxes and depreciation for four years. The company is entirely financed by equity and has a 24 percent tax rate. The required return on the company’s unlevered equity is 14 percent and the...
Zoso is a rental car company that is trying to determine whether to add 25 cars to its fleet. The company fully depreciates all its rental cars over five years using the straight-line method. The new cars are expected to generate $175,000 per year in earnings before taxes and depreciation for five years. The company is entirely financed by equity and has a 35 percent tax rate. The required return on the company's unlevered equity is 13 percent, and the...
Zoso is a rental car company that is trying to determine whether to add 25 cars to its fleet. The company fully depreciates all its rental cars over five years using the straight-line method. The new cars are expected to generate $125,000 per year in earnings before taxes and depreciation for five years. The company is entirely financed by equity and has a 35 percent tax rate. The required return on the company’s unlevered equity is 14 percent, and the...
mind showing how to find the PVIFA using a BA II plus? im kinda stumped What more info do you need? That is the entire question! Problem 18-1 NPV and APV Zoso is a rental car company that is trying to determine whether to add 25 cars to its fleet. The company fully depreciates all its rental cars over five years using the straight-line method. The new cars are expected to generate $190,000 per year in earnings before taxes and...
A company has a single zero coupon bond outstanding that matures in five years with a face value of $41 million. The current value of the company’s assets is $31 million, and the standard deviation of the return on the firm’s assets is 37 percent per year. The risk-free rate is 5 percent per year, compounded continuously. a. What is the current market value of the company’s equity? (Do not round intermediate calculations and round your answer to 2...
On January 1, 2020 Cars C Us sold a fleet of cars to a car rental company accepting a 2%, 5-year note requiring interest payments at the end of each year. Cars C Us received a $21,000.00 down payment and a note with a face value of $273,000.00 in exchange for the cars. The cars had a cost of $231,000. A reasonable borrowing rate of 10% should be used. Prepare the journal entries to record the sale and 2020 and...
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...
Sundae Inc is deciding whether to undertake a new project. The project is expected to be riskier than the firm's current operations. For cost of capital estimation management wants to use the subjective approach and add 4 percent to its weighted average cost of capital of the firm The new project is expected to generate free cash flow of $900,000 by the end of the first year, and the cash flows are projected to grow at a rate of 3...
You've observed the following returns on Yamauchi Corporation's stock over the past five years: -26.7 percent, 14.8 percent, 32.6 percent, 2.9 percent, and 21.9 percent. The average inflation rate over this period was 3.29 percent and the average T-bill rate over the period was 4.3 percent. a. What was the average real risk-free rate over this time period? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What was...