An investment proposal requires $16,000 outlay now (at time zero) and returns a constant cash flow of $7,000 per period before tax savings due to interest payments for the next four years. The proposal is to have a market debt proportion of 50% (i.e., 0.50). The capital market requires per period rate of return on equity of 27% and on debt of 9%. The corporate tax rate is 40%, and interest is deductible for the calculation of income tax. Calculate the NPV and IRR based on: a. Weighted average cost of capital method b. Arditty‐Levy method c. Equity residual method d. Adjusted net present value method
An investment proposal requires $16,000 outlay now (at time zero) and returns a constant cash flow of $7,000 per period before tax savings due to interest payments for the next four years. The proposal is to have a market debt proportion of 50% (i.e., 0.50). The capital market requires per period rate of return on equity of 27% and on debt of 9%. The corporate tax rate is 40%, and interest is deductible for the calculation of income tax. Calculate the NPV and IRR based on: a. Weighted average cost of capital method b. Arditty‐Levy method c. Equity residual method d. Adjusted net present value method
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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An investment proposal requires $16,000 outlay now (at time zero) and returns a constant cash flow
of $7,000 per period before tax savings due to interest payments for the next four years. The proposal is
to have a market debt proportion of 50% (i.e., 0.50). The capital market requires per period rate of
on equity
calculation of income tax. Calculate the NPV and IRR based on:
a. Weighted average cost of capital method
b. Arditty‐Levy method
c. Equity residual method
d. Adjusted
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