provide correct answers please. Problem 18-14 Beta and LeverageEstefan Industries has a new project available that requires an initial investment of $4.7million. The project will provide unlevered cash flows of $845,000 per year for the next20 years. The company will finance the project with a debt-value ratio of .3. Thecompany's bonds have a YTM of 6.6 percent. The companies with operationscomparable to this project have unlevered betas of 1.14, 1.07, 1.29, and 1.24. The risk-freerate is 4 percent and the market risk premium is 6.8 percent. The tax rate is 25percent. What is the NPV of this project? (Do not round intermediate calculations andenter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g.,1,234,567.89)NPV

The net present value is the difference between the PV of all cash flows and the initial…

Answered: Estefan Industries has a new project…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter11: The Cost Of Capital

Section: Chapter Questions

Problem 20PROB

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Y8 Estefan Industries has a new project available that requires an initial investment of $5.5 million. The project will provide unlevered cash flows of $854,000 per year for the next 20 years. The company will finance the project with a debt-value ratio of .35. The company’s bonds have a YTM of 7.5 percent. The companies with operations comparable to this project have unlevered betas of 1.05, .93, 1.20, and 1.15. The risk-free rate is 4.3 percent and the market risk premium is 6.4 percent. The tax rate is 24 percent. What is the NPV of this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89)
Question 6 "Axon Industries needs to raise $250,000 USDs for a new investment project. If the firm issues 1-year debt, it may have to pay an interest rate of 15%, although Axon's managers believe that 8.5% would be a fair rate given the level of risk. If the firm issues equity, they believe the equity may be underpriced by 11%.What is the cost (in USDs) to current shareholders of financing the project out of equity? Note: Express your answers in strictly numerical terms. For example, if the answer is $500
aa.3 A project requires an initial investment of $500,000. This project will generate a future cash flow of $100,000/year for 8 years. The WACC of the firm is 8%. The cost of equity of this firm is 12%. The cost of debt of this firm is 6%. The risk-free rate is 3%. The floatation cost of equity is 4%. The floatation cost of debt is 2%. The target debt-to-equity ratio is 0.5. What is the NPV of this project?
13.15 Calculating Flotation Costs Southern Alliance Company needs to raise $75 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company has a target capital structure of 70 percent common stock, 5 percent preferred stock, and 25 percent debt. Flotation costs for issuing new common stock are 7 percent; for new preferred stock, 4 percent; and for new debt, 3 percent. What is the true initial cost figure the company should use when evaluating its project?
TB MC Qu. 18-28 Joshua Industries is considering a new... Joshua Industries is considering a new project with revenue of $478,000 for the indefinite future. Cash costs are 68 percent of the revenue. The initial cost of the investment is $685,000. The tax rate is 21 percent and the unlevered cost of equity is 14.2 percent. The firm is financing $200,000 of the project cost with debt. What is the adjusted present value of the project? Multiple Choice O O O $207,975 $232,408 $202,429 $225,941 $198,311
14 NuPress Valet has a proposed investment with an initial cost of $62 million and cash flows of $12.5 million for 5 years. Debt represents 44 percent of the capital structure. The cost of equity is 13.7 percent, the pretax cost of debt is 8.5 percent, and the tax rate is 34 percent. What is the company's WACC?
Problem 13-16 WACC and NPV Lebleu, Incorporated, is considering a project that will result in initial aftertax cash savings of $1.86 million at the end of the first year, and these savings will grow at a rate of 2 percent per year indefinitely. The company has a target debt-equity ratio of .8, a cost of equity of 12.6 percent, and an aftertax cost of debt of 5.4 percent. The cost- saving proposal is somewhat riskier than the usual projects the firm undertakes; management uses the subjective approach and applies an adjustment factor of +3 percent to the cost of capital for such risky projects. What is the maximum initial cost the company would be willing to pay for the project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) Maximum cost ..........
Problem 18-7 NPV for an All-Equity Company Jiminez, Incorporated, is an all-equity firm. The cost of the company's equity is currently 11.5 percent and the risk-free rate is 4.4 percent. The company is currently considering a project that will cost $11.94 million and last six years. The company uses straight-line depreciation. The project will generate revenues minus expenses each year in the amount of $3.55 million. If the company has a tax rate of 23 percent, what is the net present value of the project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) Net present $ 6,886,082.02 value
#7 Suppose that Caterpillar (CAT) has a project with the following cash flows: YEAR Cash flow 0 -$40.00 1 2 $13.00 $11.00 3 $11.00 4 $12.00 The company has debt valued at 45.00 billion on its balance sheet, while the market value of its common stock is roughly 31.00 billion. The yield to maturity on the debt is 5.50%, and the cost of equity for the firm is 12.00%. Finally, the marginal tax rate facing the company is 34.00%. What is the NPV for this project?
12-6 Van Bran Inc. is looking into financing a $30 million project with an equity issue. If the firm’s underwriter charges a spread (i.e., underwriting fee) of 6% on equity issues, what is the gross amount that must be raised in Van Bran’s equity issue? Select one: a. $31,914,894 b. $32,000,000 c. $33,264,980 d. $33,684,210 e. $34,042,553
Connect Problem CP 16-07 (algo) Suppose that you have $10,000 to invest and you are trying to decide between investing in project A or project B. If you invest in project A, you will receive a payment of $12,500 at the end of 3 years. If you invest in project B, you will receive a payment of $18,500 at the end of 12 years. The annual interest rate is 5 percent and both projects carry no risk. Instructions: Round your answers to the nearest dollar. Do not round your intermediate calculations. a. What is the present value of each project? Enter your answers in the table below. Project A = Project B = Present Value $ 2894 $ 15265 b. Which project will you choose for your investment? Project A O Project B A
QUESTION 12 The cost of capital for 3M is 8.85% and it currently has $400 million in debt and $1,600 million in equity outstanding. Assume 3M wants to raise an additional $240 to fund a new project. Which of the following statements is most accurate? In order to maintain the current cost of capital, 3M should raise this capital by O Borrowing $60 million and raising equity of $180 million O Any combination of debt and equity O Borrowing $48 million and raising equity of $192 million O Borrowing $180 million and raising equity of $60 million O Borrowing $192 million and raising equity of $48 million

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