Baghiben Problem 13-22 Flotation Costs and NPVLandman Corporation (LC) manufactures time series photographic equipment. It iscurrently at its target debt-equity ratio of 75. It's considering building a new $57 millionmanufacturing facility. This new plant is expected to generate aftertax cash flows of $6.9million in perpetuity. The company raises all equity from outside financing. There arethree financing options:1. A new issue of common stock. The flotation costs of the new common stock would be8.7 percent of the amount raised. The required return on the company's new equity is15 percent.2. A new issue of 20-year bonds. The flotation costs of the new bonds would be 3.7percent of the proceeds. If the company issues these new bonds at an annual couponrate of 5.8 percent, they will sell at par.3. Increased use of accounts payable financing. Because this financing is part of thecompany's ongoing daily business, it has no flotation costs and the company assignsit a cost that is the same as the overall firm WACC. Management has a target ratio ofaccounts payable to long-term debt of 10. Assume there is no difference between thepretax and aftertax accounts payable costs.What is the NPV of the new plant? Assume that LC has a 22 percent tax rate. (Do notround intermediate calculations and enter your answer in dollars, not millions ofdollars, rounded to the nearest whole number, e.g., 1,234,567.)NPV

Net present value is a discounted cash flow method used for evaluating capital investment projects.…

Answered: Landman Corporation (LC) manufactures…

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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9 eBook References Gaston Company is considering a capital budgeting project that would require a $2,200,000 investment in equipment with a useful life of five years and no salvage value. The company's tax rate is 30% and its after-tax cost of capital is 12%. It uses the straight-line depreciation method for financial reporting and tax purposes. The project would provide net operating income each year for five years as follows: Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of- pocket costs Depreciation Total fixed expenses Net operating income before tax $520,000 440,000 $ 3,000,000 1,660,000 1,340,000 960,000 $ 380,000 Required: Compute the project's net present value. Net present value
4 Book Consider two mutually exclusive new product launch projects that Nagano Golf is considering. Assume that the discount rate for Nagano Golf is 16 percent Project A Nagano NP-30. Professional clubs that will take an initial investment of $971,000 at time 0. Next five years (years 1-5) of sales will generate a consistent cash flow of $440,000 per year. Introduction of new product at year 6 will terminate further cash flows from this project Project B Nagano NX-20 High-end amateur clubs that will take an initial investment of $700,000 at time 0. Cash flow at year 1 is $290,000. In each subsequent year, cash flow will grow at 10 percent per year. Introduction of new product at year 6 will terminate further cash flows from this project. Year e 1 2 3 4 NP-30 -$971,000 440,000 440,000 440,000 440,000 440,000 NX-20 -$700,000 290,000 319,000 350,900 Net present value Internal rate of return 385,990 424,589 Complete the following table: (Do not round intermediate calculations. Round the…
14. I need help with finance home work question asap please A company is considering a project that would require a cash outflow in the amount of $1,000,000 at the beginning. The company expects the project to generate average annual cash inflows in the amount of $40,000. The average book value for the project is expected to be $250,000 and average annual net income is expected to be $55,000. The company requires a return of 15.25%. What is the average accounting return for this project?
Problem 14-30 Flotation Costs and NPV (LO4, 7) Retlaw Corporation (RC) manufactures time-series photographic equipment. It is currently at its target debt-equity ratio of 0.76. It’s considering building a new $38 million manufacturing facility. This new plant is expected to generate after-tax cash flows of $8.0 million in perpetuity. The company raises all equity from outside financing. There are three financing options: A new issue of common stock: The flotation costs of the new common stock would be 10% of the amount raised. The required return on the company’s new equity is 14%. A new issue of 20-year bonds: The flotation costs of the new bonds would be 4% of the proceeds. If the company issues these new bonds at an annual coupon rate of 8.0%, they will sell at par. Increased use of accounts payable financing: Because this financing is part of the company’s ongoing daily business, it has no flotation costs, and the company assigns it a cost that is the same as the overall firm WACC.…
21 Bi-Lo Traders is considering a project that will produce sales of $34,450 and have costs of $20,300. Taxes will be $3.500 and the depreciation expense will be $1,97% An intal cash ouday of $1,000 is required for networking capital. What is the projects operating cash flow? $6.925 $8.900 $8.575 $10.550 Next
Week 7 Giant Machinery Ltd is considering to invest in one of the two following Projects to buy a new equipment. Each project will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 9%. The cash flows of the projects are provided below. Project 1 Project 2 Cost $175,000 $185,000 Future Cash flow Year1 76,000 87,000 Year2 83,000 78,000 Year3 67,000 69,000 Year4 65,000 65,000 Year5 55,000 57,000 Required: a) Identify which project should the company accept based on NPV method. (Note: Please round up the result of each calculation of PV to 2 decimal places only for simplification) b) Identify which project should the company accept based on simple pay back method if the payback criteria is maximum 2 years. c) Which project Giant Machinery should choose if two methods are in conflict.
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Lesi PayUBLK Perou, el Presem velue Method, and Analysis Elite Apparel Inc. is considering two Investment projects. The estimated net cash flows from each project are as follows: Year Plant Expansion Retall Store Expansion 1 2 3 4 5 Total Year Each project requires an Investment of $241,000. A rate of 15% has been Present Value of $1 at Compound Interest 6% 10% 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 1 2 3 4 5 6 7 8 9 10 Required: $133,000 108,000 94,000 85,000 26,000 $446,000 0.909 Net present value 0.826 0.751 15% 0.893 0.870 0.833 0.797 0.756 0.694 0.712 0.579 0.683 0.636 0.572 0.482 0.621 0.557 0.497 0.402 0.564 0.507 0.432 0.335 0.513 0.452 0.376 0.279 0.467 0.327 0.233 0.424 0.284 0.194 0.385 0.247 12% 0.404 0.361 0.322 2 years Present value of net cash flow total Less amount to be invested $111,000 130,000 89,000 62,000 54,000 $446,000 1a. Compute the cash payback period for each project. Cash Payback Period 2 years ✓ ✓ S api 0.658 S 20% Plant Expansion…
TB MC Qu. 18-28 Joshua Industries is considering a new... Joshua Industries is considering a new project with revenue of $478,000 for the indefinite future. Cash costs are 68 percent of the revenue. The initial cost of the investment is $685,000. The tax rate is 21 percent and the unlevered cost of equity is 14.2 percent. The firm is financing $200,000 of the project cost with debt. What is the adjusted present value of the project? Multiple Choice O O O $207,975 $232,408 $202,429 $225,941 $198,311
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