Consider the following case of Happy Turtle Transportation Company: Suppose Happy Turtle Transportation Company is considering a project that will require $350,000 in assets. • The company is small, so it is exempt from the interest deduction limitation under the new tax law. • The project is expected to produce earnings before interest and taxes (EBIT) of $40,000. • Common equity outstanding will be 10,000 shares. • The company incurs a tax rate of 25%.   If the project is financed using 100% equity capital, then Happy Turtle Transportation Company’s return on equity (ROE) on the project will be    . In addition, Happy Turtle’s earnings per share (EPS) will be    .   Alternatively, Happy Turtle Transportation Company’s CFO is also considering financing the project with 50% debt and 50% equity capital. The interest rate on the company’s debt will be 10%. Because the company will finance only 50% of the project with equity, it will have only 5,000 shares outstanding. Happy Turtle Transportation Company’s ROE and the company’s EPS will be    if management decides to finance the project with 50% debt and 50% equity.   When a firm uses debt financing, the business risk exposure for the firm’s common shareholders will .

J.B. Enterprises is considering the purchase of new equipment with a cost of             $1,000,000. If the equipment is purchased, the incremental net cash flows are             expected to be $300,000 per year for five years. These net cash flows already reflect the                    of the equipment and the company’s 40% tax rate. However, there are liability risks            associated with the use of this product. The board of directors estimates a “cost of worry” of $25,000 per year. Calculate the net present value of this project incorporating     the cost of worry if the company’s cost of capital is 10%.             a.         $42,466             b.         $340,909             c.         $375,000             d.         $61,420

As a member of UA Corporation's financial staff, you must estimate the Year 1 cash flow for a proposed project with the following data. Under the new tax law, the equipment used in the project is eligible for 100% bonus depreciation, so it will be fully depreciated at t = 0. What is the Year 1 cash flow? Do not round the intermediate calculations and round the final answer to the nearest whole number.  Sales revenues, each year $45,500 Other operating costs $22,522 Interest expense $4,000 Tax rate 25.0%

Baghiben

Novak Company would like to start a new venture. The company is currently in the 24% marginal tax bracket and uses a 4% discount factor. The company projects that the venture will produce before-tax cash flows of $9,000 in Year 0, $20,000 in Year 1, and $33,000 in Year 2. (a) If taxable income and the before-tax cash flows are equal in the year received, compute the present value of the cash flows. (Round present value factor calculations to 3 decimal places, e.g. 1.251 and final answer to O decimal places, e.g. 58,971.) Present value

Plant company is contemplating the purchase of a new piece of equipment for $59,000. Plant is in the 20% income tax bracket.

You need to solve this exercise using Excel functions. (Please show work on excel) ABC Inc. plans to invest in new equipment. It will purchase the new equipment for $130,000 and sell its old version, which is fully depreciated, for $25,000. The new equipment has a 10-year useful life and will save $45,000 a year in expenses before tax. The opportunity cost of capital is 11%, and the firm’s tax rate is 21%. What is the NPV of this investment if ABC can benefit from bonus depreciation?

Universal Exports Inc. is a small company and is considering a project that will require $650,000 in assets. The project will be financed with 100% equity. The company faces a tax rate of 25%. What will be the ROE (return on equity) for this project if it produces an EBIT (earnings before interest and taxes) of $155,000?   10.73%   17.88%   18.77%   12.52%     Determine what the project’s ROE will be if its EBIT is –$50,000. When calculating the tax effects, assume that Universal Exports Inc. as a whole will have a large, positive income this year.   -4.64%   -6.67%   -5.22%   -5.8%     Universal Exports Inc. is also considering financing the project with 50% equity and 50% debt. The interest rate on the company’s debt will be 12%. What will be the project’s ROE if it produces an EBIT of $155,000?   28.11%   18.74%   26.77%   21.42%     What will be the project’s ROE if it produces an EBIT of –$50,000 and it…

Your Company is considering a new project that will require $1,090,000 of new equipment at the start of the project. The equipment will have a depreciable life of 7 years and will be depreciated to a book value of $484,500 using straight-line depreciation. The cost of capital is 14%, and the firm's tax rate is 21%. Estimate the present value of the tax benefits from depreciation (closest to). Multiple Choice $77,897 $86,500 Help Save & Exit $18,165 Se