Mazenga Corp (MC) is a tech compamy. They cater to hospitals mainly. The company has been in existence for past 20 years. Management however feels after the next 15 years, they may shut shop. When they started they had invested $15 million. Over the past 2 decades, they have grown steadfast. For the next 15 years, they want to focus only on hospitals in York Region. They require $5.5 million to keep the business going. Based on referrals, they are reasonably confident to receive $1 million post tax each year. Cost of equity in this business is pretty high at 18%. Mazenga’s CFO runs the financial forecasts and she mentioned she can raise $3 million at 8% net of floatation costs through Scotia Bank. Floatation Cost for debt is 2% and equity is 3%. MC is in the higher tax bracket of 45%. a) What is the NPV for the project b) If Government were to help MC raise $3 million at 5.4% with zero floatation costs, what would the APV be?

Mazenga Corp (MC) is a tech compamy. They cater to hospitals mainly. The company has been in existence for past 20 years. Management however feels after the next 15 years, they may shut shop. When they started they had invested $15 million. Over the past 2 decades, they have grown steadfast. For the next 15 years, they want to focus only on hospitals in York Region. They require $5.5 million to keep the business going. Based on referrals, they are reasonably confident to receive $1 million post tax each year. Cost of equity in this business is pretty high at 18%. Mazenga’s CFO runs the financial forecasts and she mentioned she can raise $3 million at 8% net of floatation costs through Scotia Bank. Floatation Cost for debt is 2% and equity is 3%. MC is in the higher tax bracket of 45%. a) What is the NPV for the project b) If Government were to help MC raise $3 million at 5.4% with zero floatation costs, what would the APV be?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter17: The Management Of Cash And Marketable Securities

Section: Chapter Questions

Problem 5P

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