Question

Check my work 4 MVP, Inc, has produced rodeo supplies for over 20 years. The company currently has a debt-equity ratio of 45 percent and the tax rate is 22 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: 10 points Year Cash Flow -$18.800,000 eBook 5,780,000 9,580,000 8.880,000 2 3 Print The company has arranged a debt issue of $9.54 million to partially finance the expansion. Under the loan, the company would pay interest of 8 percent at the end of each year on the outstanding balance at the beginning of the year. The company also would make year-end principal payments of $3,180,000 per year, completely retiring the issue by the end of the third year References Calculate the APV of the project (Do not round Intermedlate calculatilons and enter your answer In dollars, not milons of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) APV 7.014,013 85 Pre Net Vhere to sech esc ? * 4- 4+ ! # $ 7 A 2 & 3 4 5

Answer 1

.100 computation of Nov weighted average cost of capital (WACC) (cost of equity & 55+ cost of debt xu5) cost of debt - 8.1. after tax cast of debt - 6.247. C 8.1.0 (1 - 0 22) 314 X55 + 6.24 x 45 = 10:58 year cash flow PUF @ 10.511. Discounted cash flows 1 5780.000 0.9049 $5230322 2 95,80.000 0.8188 $7844 Loy 3 188,80,000 o 7409 46579192 (00 100 present value of cash flow - $ 19653618 e anitial anvestment - $(18800ooo! NPV - $853618 TNPV - $853618 ]