Problem 18-7 NPV for an All-Equity CompanyJiminez, Incorporated, is an all-equity firm. The cost of the company's equity is currently11.5 percent and the risk-free rate is 4.4 percent. The company is currently considering aproject that will cost $11.94 million and last six years. The company uses straight-linedepreciation. The project will generate revenues minus expenses each year in theamount of $3.55 million. If the company has a tax rate of 23 percent, what is the netpresent value of the project? (Do not round intermediate calculations and enter youranswer in dollars, not millions of dollars, rounded to 2 decimal places, e.g.,1,234,567.89)Net present$ 6,886,082.02value

The answer is in the explanation.Explanation:1. Annual Revenue = $3.55 million 2. Depreciation: The…

Answered: Problem 18-7 NPV for an All-Equity…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter11: The Cost Of Capital

Section: Chapter Questions

Problem 18PROB

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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 ..........
OLA #11.1 A company is considering an investment that requires an immediate investment of $475,000 and an additional investment of $125,000 in year 3. The investment will generate annual profits of $170,000 for five years, starting from year 2. a. Calculate the IRR for this investment. b. If the cost of capital is 7.5%, should the company undertake the investment? Yes or No Kindly add all the decimals DO NOT ROUND
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Week 4Giant Equipment Ltd. is considering two projects to invest next year. Both projects have the same start-up costs. Project A will produce annual cash flows of $42,000 at the beginning of each year for eight years. Project B will produce cash flows of $48,000 at the end of each year for seven years. Thecompany requires a 12% return.Required:a) Which project should the company select and why? b) Which project should the company select if the interest rate is 14% at the cash flows in Project B is also at the beginning of each year?
QUESTION 36 Advanced Products is considering the purchase of a computer-aided manufacturing system that requires an initial investment of $1,750,000 and is expected to provide an increase in net income of $200,000 and average annual cash benefits and savings of $250,000 each year for the next 10 years. Their current cost of capital is 10%. Following are selected factors from tables for 10 years at 10%: FV of $1 FVOA PV of $1 PVOA 2.59374 15.93742 0.38554 6.14457 Required: Compute the Accounting Rate of Return of the investment 14.3% 8% 10% 11.4%
QUESTION 33 Advanced Products is considering the purchase of a computer-aided manufacturing system that requires an initial investment of $1,750,000 and is expected to provide an increase in net income of $200,000 and average annual cash benefits and savings of $250,000 each year for the next 10 years. Their current cost of capital is 10%. Following are selected factors from tables for 10 years at 10%: FV of $1 FVOA PV of $1 PVOA 2.59374 15.93742 0.38554 6.14457 Required: Compute the present value of the cash inflows/savings $1,536,142.50 $648,435 $963,850 $2,500,000

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