Nikul Longhorn, Incorporated, has produced rodeo supplies for over 20 years. The companycurrently has a debt-equity ratio of 45 percent and the tax rate is 23 percent. Therequired return on the firm's levered equity is 12 percent. The company is planning toexpand its production capacity. The equipment to be purchased is expected to generatethe following unlevered cash flows:Year0123Cash Flow-$APV19,400,0005,840,0009,640,0008,940,000The company has arranged a debt issue of $9.72 million to partially finance theexpansion. Under the loan, the company would pay interest of 7 percent at the end ofeach year on the outstanding balance at the beginning of the year. The company alsowould make year-end principal payments of $3,240,000 per year, completely retiring theissue by the end of the third year. What is the APV of the project? (Do not roundintermediate calculations and enter your answer in dollars, not millions of dollars.rounded to 2 decimal places, e.g., 1,234,567.89)

The adjusted present value is used to determine how desirable a project or investment is. The tax…

issue by the end of the third year. What is the APV 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) APV

issue by the end of the third year. What is the APV 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) APV

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter6: Accounting For Financial Management

Section: Chapter Questions

Problem 11P: The Berndt Corporation expects to have sales of 12 million. Costs other than depreciation are...

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Question

Nikul

Longhorn, Incorporated, has produced rodeo supplies for over 20 years. The company
currently has a debt-equity ratio of 45 percent and the tax rate is 23 percent. The
required return on the firm's levered equity is 12 percent. The company is planning to
expand its production capacity. The equipment to be purchased is expected to generate
the following unlevered cash flows:
Year
0123
Cash Flow
-$
APV
19,400,000
5,840,000
9,640,000
8,940,000
The company has arranged a debt issue of $9.72 million to partially finance the
expansion. Under the loan, the company would pay interest of 7 percent at the end of
each year on the outstanding balance at the beginning of the year. The company also
would make year-end principal payments of $3,240,000 per year, completely retiring the
issue by the end of the third year. What is the APV 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)

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