Digital Organics (DO) has the opportunity to invest $1 million now (t = 0) and expects after-tax returns of $600,000 in t = 1 and $700,000 in t = 2. The project will last for two years only. The appropriate cost of capital is 12% with all-equity financing, the
TABLE 19.3
Balance sheet for Wishing Well, Inc. (figures in $ millions).
Cash and marketable securities | 100 | Bank loan | 280 |
Accounts receivable | 200 | Accounts payable | 120 |
Inventory | 50 | Current liabilities | 400 |
Current assets | 350 |
|
|
Real estate | 2,100 | Long-term debt | 1,800 |
Other assets | 150 | Equity | 400 |
Total | 2,600 | Total | 2,600 |
TABLE 19.4
Simplified book balance sheet for Rensselaer Felt (figures in $ thousands).
Cash and marketable | 1,500 | Short-term debt | 75,600 |
securities |
|
|
|
Accounts receivable | 120,000 | Accounts payable | 62,000 |
Inventories | 125,000 | Current liabilities | 137,600 |
Current assets | 246,500 |
|
|
Property, plant, |
| Long-term debt | 208,600 |
and equipment | 302,000 | Deferred taxes | 45,000 |
Other assets | 89,000 | Shareholders’ equity | 246,300 |
Total | 637,500 | Total | 637,500 |
borrowing rate is 8%, and DO will borrow $300,000 against the project. This debt must be repaid in two equal installments. Assume debt tax shields have a net value of $.30 per dollar of interest paid. Calculate the project’s APV using the procedure followed in Table 19.2.
We need at least 10 more requests to produce the solution.
0 / 10 have requested this problem solution
The more requests, the faster the answer.