I need help understanding a simple equation for this work problem The Maximus Corporation is considering a new investment, which would be financed from debt. Maximus could sell new $1,000 par value bonds at a new price of $920. The bonds would mature in 13 years, and the coupon interest rate is 10%. Compute the after-tax cost of capital to Maximus for bonds, assuming a 34% tax rate. Show work
Q: Your company is considering the purchase of a fleet of cars for $195,000. It can borrow at 8.5%. The…
A: As per the given information: Purchase of a fleet of cars = $195,000Borrowing rate - 8.5%Corporate…
Q: Hungry Whale Electronics is considering an investment that will have the following sales, variable…
A: “Hi There, thanks for posting the question. But as per Q&A guidelines, we must answer the first…
Q: 3) Fast Machine, Inc. have a Project with the following cash flows. The company evaluates the…
A: IRR is Internal Rate of Return and is one of the main techniques of capital budgeting. It is a rate…
Q: Jillian invested $2,000 six years ago at 4.5 percent interest. She spends all of her interest…
A: Data given: Amount invested=$2000 Interest rate=4.5% Jillian spends all of her interest earnings…
Q: Determine the necessary working capital using the maximum deficit method, for project "X" with the…
A: Working capital, commonly called net working capital (NWC), is the difference between a company's…
Q: How much would you have to deposit today to be able to withdraw $1,000 EACH year forever. You…
A: Annual payment = p = $1000 Interest rate = r = 4% Time = Forever
Q: Two stocks each currently pay a dividend of $1.50 per share. It is anticipated that both firms…
A: Dividend growth model: This is a valuation model that calculates the fair value of stock. It is…
Q: Seth and Alexandra Moore of Elk Grove Village, Illinois have an annual income of $120,000 and want…
A: Data given: Annual income = $120,000 Real estate taxes per year= $5,160 Homeowner's insurance per…
Q: Your division is considering two projects with the following cash flows (in millions): 0 2 3 1…
A: The difference between the current value of cash inflows and outflow of cash over a period of time…
Q: Pitt Company is considering two alternative Investments. The company requires a 12% return from its…
A: IRR stands for Internal Rate of Return, which is a financial metric used to calculate the potential…
Q: Give typing answer with explanation and conclusion A bond pays coupon rate of 5% with interest…
A: We will use excel NPER function for calculating number of years to maturity . As interest is paid…
Q: A corporation knows it will need to pay for a $1,200,000 roof in 20 years. It invests monthly in a…
A: We need to use future value of annuity due formula to calculate monthly payment. PMT = FVn(1+i)n…
Q: EXERCISE 1: BREAK-EVEN POINT IN UNITS AND IN REVENUE For this exercise, use the following…
A: Break even point is where all cost are covered , both fixed cost and variable cost are covered and…
Q: How do you calculate inflation premium
A: Inflation refers to the sustained increase in the general level of prices of goods and services in…
Q: The Turnip Company plans to issue preferred stock. Currently, the company’s stock sells for $110.…
A: Current stock price = $110 New Issue price = $90 Dividend rate = 8% Par value= $100
Q: An annual coupon bond that matures in 3 years and pays a 4% coupon rate is currently valued at…
A: Data given: Face value of bond=$100 (assumption) Coupon rate=4% n=3 years Current value=97.564…
Q: Use online resources to determine other reasons that OAO Gazprom stock was suffering at the time. In…
A: Aside from the issues with disclosure quality in 2009, there were a number of other causes why OAO…
Q: The managers of Price Company are considering replacing an existing piece of equipment, and have…
A: Here, Particulars Values Initial investment $600,000 Annual cash flows $500,000 Tax…
Q: A company is expected to pay a dividend of $3.0 per share next year. Over the next three years, the…
A: As per the given information: Dividend for next year - $3.0Growth in dividends over the next three…
Q: obotics stock has a volatility of 27% and a current stock price of $64 per share. Roslin pays no…
A: Information Provided: Volatility = 27% Stock price (S) = $64 Risk free rate (r) = 4% Time to expiry…
Q: Avril will pay a dividend of $2 per share starting from year 6 and the growth rate is 10%, assume no…
A: When the company receives profits and distributes them among the shareholders. That share of profit…
Q: Derry Corporation is expected to have an EBIT of $3,300,000 next year. Increases in depreciation,…
A: It represents the current value of a stock to the buyer and seller per share. It is primarily…
Q: What is the expected current yield for each bond in each year? Round your answers to two decimal…
A: A bond is a kind of debt security issued by the government and private companies for raising funds…
Q: A stock is expected to pay a dividend of $6.3 in two years and a $4.6 in three years. You are…
A: Dividends are a portion of a company's profits that are distributed to its shareholders as a return…
Q: You are attempting to value a call option with an exercise price of $109 and one year to expiration.…
A: The call option is a derivative instrument that provides the choice of purchase of the associated…
Q: After all foreign and U.S. taxes, a U.S. corporation expects to receive 4 pounds of dividends per…
A: Present value refers to the current worth of a future sum. The dividend growth rate refers to the…
Q: A company is expected to pay a dividend of $3.0 per share next year. Over the next three years, the…
A: There are different ways to calculate the value or price of the stock. One of the popular models of…
Q: Consider the following information: Stock Return if Market Return Is: Stock –13% 10% A 0 14 B –5 21…
A: The formula for calculating the beta is Beta=Change in stock returnChange in market return
Q: Find the periodic withdrawals PMT for the given annuity account. HINT [See Quick Example 4.] (Assume…
A: An annuity is an equal series of periodic payments at a predetermined rate of interest for a…
Q: lifford Clark is a recent retiree who is interested in investing some of his savings in corporate…
A: Price risk is the risk of declining the bond price due to the increase in the interest rate while…
Q: Mervyn's Fine Fashion has an average collection period of 30 days. The accounts receivable balance…
A: Average Collection Period is that period under which period we have received the credit sales…
Q: Utah Enterprises is considering buying a vacant lot that sells for $1.1 million. If the property is…
A: Net Present Value: NPV is the current worth of cash flows expected to occur in the future. The net…
Q: A bank has $770 million in checkable deposits. The bank has $85 million in reserves. If the reserve…
A: Checkable deposits = $770 million Reserves = $85 million Reserve requirement = 10% The bank's…
Q: If a product sells P^(7500) and costs P^(4300) to manufacture, its gross margin is P^(3200). Find…
A: Selling price = 7500 cost = 4300 Gross margin = 3200
Q: Give typing answer with explanation and conclusion jeanette takes out a 50 year loan of 30000.…
A: When we take a loan we make periodic payments against that loan. In this case the periodic payments…
Q: Calculate your total return from this investment. You bought a stock for $105. You received $7…
A: Purchase price = p = $105 Annual dividend earned = d = $7 Time = t = 2 years Selling price = s = $74…
Q: Since you I posted a question with multiple sub-parts , you solved the first three sub-parts for me.…
A: It represents the point at which the firm's total cost becomes equal to the total revenues. Thus, at…
Q: Data for Dana Industries is shown below. Now Dana acquires some risky assets that cause its beta to…
A: Initial beta = 1 Initial required return = 10.20% The market risk premium, RPM = 6.00% Percentage…
Q: The following table shows the average life expectancies in several countries. Assume that all…
A: Life insurance is a type of insurance that provides the beneficiaries with an insured amount in the…
Q: What are the functions of Development Bank of the Philippines and what do they do/mandate?
A: The Development Bank of the Philippines (DBP) is a government-owned financial institution in the…
Q: Your financial planner offers you two different investment plans. Plan 1 is a R3958 annual…
A: Present value of annuity is the current value of the future payments that are calculated using the…
Q: A company purchased inventory as follows: 150 units at $5 350 units at $4 The average unit cost for…
A: Here, Purchase Price of 150 units is $5 Purchase Price of 350 units is $4
Q: What is the expected capital gains yield for each bond in each year? Round your answers to two…
A: A bond is a kind of debt security issued by the government and private companies for raising funds…
Q: f a stock's variance of return is written as σ2, then its standard deviation will be written as:
A: Standard deviation and variance are the measures of risk and volatility and both are important…
Q: How might a change in dividend policy or a share repurchase impact a company's share price? Explain…
A: Dividend policy refers to the framework or guidelines that a company uses to determine the amount…
Q: paid by a company that has a current stock price of $125.00, a dividend yield of 8.6% and dividends
A: Here given Dividend Yield = D1/P = 8.6%, given growth in dividend = 4.2%, P = current share price =…
Q: t is April 5, 2023. The price of a Treasury Bond with a 5% coupon that matures on June 10, 2026 is…
A: As per the given information: Face value - $100Coupon rate - 5% Quoted price - 101-06Today's date -…
Q: WSP Inc. is involved in a wide range of unrelated projects. The company will pursue any project that…
A: Higher risky projects have more discount rate to adjust risk with expected return by investors. The…
Q: While individual consumers have a credit score, large, publicly-held corporations are not typically…
A: It is the score that determines the creditworthiness of any entity be it an individual, company,…
Q: Last month, Central Virginia Power Company, which had been having trouble with cost overruns on a…
A: The stock market shows efficiency in terms of absorbing different types of information. When this…
I need help understanding a simple equation for this work problem
The Maximus Corporation is considering a new investment, which would be financed from debt. Maximus could sell new $1,000 par
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 2 images
- Digital Organics (DO) has the opportunity to invest $1.06 million now (t = 0) and expects after-tax returns of $660,000 in t = 1 and $760,000 in t= 2. The project will last for two years only. The appropriate cost of capital is 13% with all-equity financing, the borrowing rate is 9%, and DO will borrow $360,000 against the project. This debt must be repaid in two equal installments of $180,000 each. Assume debt tax shields have a net value of $0.40 per dollar of interest paid. Calculate the project's APV. (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations. Round your answer to the nearest whole number.) Adjusted present valueigital Organics (DO) has the opportunity to invest $1.03 million now (t = 0) and expects after 2. The project will last for two years = - tax returns of $630,000 in t = 1 and $730,000 in t only. The appropriate cost of capital is 11% with all - equity financing, the borrowing rate is 7%, and DO will borrow $330,000 against the project. This debt must be repaid in two equal installments of $165,000 each. Assume debt tax shields have a net value of $0.20 per dollar of interest paid. Calculate the project's APV.Muscat Metal is evaluating a project that requires an investment of $150 million today and provides a single cash flow of $180 million for sure one year from now. Muscat Metal decides to use 100% debt financing for this investment. The risk-free rate is 5% and Muscat's corporate tax rate is 21%. Assume that the investment is fully depreciated at the end of the year. The NPV of this project using the APV method is closest to: a. $71 million. b. $10 million c. $17 million. d. $42 million
- A financial manager is considering two possible sources of funds necessary to finance a $10,000,000 investment that will yield $1,500,000 before interest and taxes. Alternative one is a short-term commercial bank loan with an interest rate of 8 percent for one year. The alternative is a five-year term loan with an interest rate of 10 percent. The firm's income tax rate is 30 percent. What will be the firm’s projected earnings under each alternative for the first year? The financial manager expects short-term rates to rise to 11 percent in the second year. At that time long-term rates will have risen to 12%. What will be the firm’s projected earnings under each alternative in the second year? What are the crucial considerations when selecting between short- and long-term sources of finance?A company is considering an investment project that would cost $10 million today and yield a payoff of $15 million in 4 years. Complete the following table by indicating whether the firm should undertake the project for each of the interest rates listed. Interest Rate Undertake Project? Yes No 11% 10% 9% 8% Which of the following formulas would help you figure out the exact cutoff for the interest rate between profitability and nonprofitability? 10=15(1+x)410=151+x4 10=15x410=15x4 10=15×(1+x)410=15×1+x4 15=10(1+x)4Corporation XYZ wants to invest in a project for which the need is 44.4 million. 7.8 million will come from a bank loan at 7.99 percent per year. 7.3 million will come from issuing bonds with a bond rate of 5.46. The rest will be financed with a stock issue that will pay dividends of 5.44 dollars per share. The average stock price is 107.09. Compute the cost of capital for this project in percentage points if the tax rate is 35%
- c) Consider this question: XYZ Company can borrow money at an interest rate of 10% (that's their Cost of Capital). They have an opportunity to invest in a project that will generate returns (Free Cash Flows) over the next three years. One year from now, the project will generate $80,000 in FCF, two years from now the project will generate $90,000 in FCF, and three years from now the project will generate $100,000 in FCF. The project will require an investment of $230,000. Is it worth doing? Time 1 year from now 2 years from now 3 years from now Free Cash Flow $ $ Cost of Capital 10% 80,000 90,000 100,000A financial manager is considering two possible sources of funds necessary to finance a $10,000,000 investment that will yield $1,500,000 before interest and taxes. Alternative one is a short-term commercial bank loan with an interest rate of 8 percent for one year. The alternative is a five-year term loan with an interest rate of 10 percent. The firm's income tax rate is 30 percent. What will be the firm's projected earnings under each alternative for the first year?You are evaluating a project that requires an investment of $102 today and garantees a single cash flow of $127 one year from now. You decide to use 100% debt financing, that is, you will borrow $102. The risk-free rate is 5% and the tax rate is 39%. Assume that the investment is fully depreciated at the end of the year, so without leverage you would owe taxes on the difference between the project cash flow and the investment, that is, $25. Calculate the NPV of this investment opportunity using the APV method. (Round to two decimalplaces.) Using your answer to part (1), calculate the WACC of the project. (Round to two decimalplaces.) Verify that you get the same answer using the WACC method to calculate NPV. (Round to two decimalplaces.) Finally, show that flow-to-equity method also correctly gives the NPV of this investment opportunity. (Round to two decimalplaces.)
- You are evaluating a project that requires an investment of $97 today and garantees a single cash flow of $115 one year from now. You decide to use 100% debt financing, that is, you will borrow $97. The risk-free rate is 6% and the tax rate is 30%. Assume that the investment is fully depreciated at the end of the year, so without leverage you would owe taxes on the difference between the project cash flow and the investment, that is, $18. a. Calculate the NPV of this investment opportunity using the APV method. b. Using your answer to part (a), calculate the WACC of the project. c. Verify that you get the same answer using the WACC method to calculate NPV. d. Finally, show that flow-to-equity method also correctly gives the NPV of this investment opportunity.Kohwe Corporation plans to issue equity to raise $50.7 million to finance a new investment. After making the investment, Kohwe expects to earn free cash flows of $10.4 million each year. Kohwe's only asset is this investment opportunity. Suppose the appropriate discount rate for Kohwe's future free cash flows is 7.7%, and the only capital market imperfections are corporate taxes and financial distress costs. a. What is the NPV of Kohwe's investment? b. What is the value of Kohwe if it finances the investment with equity? a. What is the NPV of Kohwe's investment? The NPV of Kohwe's investment is $ million. (Round to two decimal places.) b. What is the value of Kohwe if it finances the investment with equity? The Kohwe finances stment with equity $ million. (Round decimal places.)GTO Incorporated is considering an investment costing $204,330 that results in net cash flows of $30,000 annually for 15 years. (PV of $1. FV of $1. PVA of $1. and FVA of $1) (Use appropriate factor(s) from the tables provided.) (a) What is the internal rate of return of this investment? (b) The hurdle rate is 13.5%. Should the company invest in this project on the basis of internal rate of return? a. Internal rate of return b. Should the company invest in this project on the basis of internal rate of return?
