Baghiben Problem 14-20 WACC and NPV [LO3, 5]Lebleu, Incorporated, is considering a project that will result in initial aftertax cashsavings of $1.85 million at the end of the first year, and these savings will grow at a rateof 3 percent per year indefinitely. The firm has a target debt-equity ratio of .85, a cost ofequity of 12.5 percent, and an aftertax cost of debt of 5.3 percent. The cost-savingproposal is somewhat riskier than the usual project the firm undertakes; managementuses the subjective approach and applies an adjustment factor of +2 percent to the costof capital for such risky projects. What is the maximum initial cost the company would bewilling to pay for the project? (Do not round intermediate calculations and enter youranswer in dollars, not millions, rounded to the nearest whole number, e.g., 1,234,567.)Maximum cost

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Answered: Problem 14-20 WACC and NPV [LO3, 5]…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 15PROB

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Question 19 Pinks Co. is considering a project with an initial cost of $5 million. The project will produce cash inflows of $2 million a year for five years. The firm has a weighted average cost of capital of 13%. Assume that the project has an average risk level as the whole firm. What is the net present value of the project? O $3.26 million O $4.48 million O $1.58 million O $2.03 million Question 20 Daffodil Inc. has a cost of equity of 16 percent and an after-tax cost of debt of 4 percent. The firm's weighted average cost of capital is 13.6 percent. What is the firm's debt-equity ratio (D/E)? 0.33 O 0.50 0.25 0.40
Problem 13-16 WACC and NPV Lebleu, Incorporated, is considering a project that will result in initial aftertax cash savings of $1.86 million at the end of the first year, and these savings will grow at a rate of 2 percent per year indefinitely. The company has a target debt-equity ratio of .8, a cost of equity of 12.6 percent, and an aftertax cost of debt of 5.4 percent. The cost- saving proposal is somewhat riskier than the usual projects the firm undertakes; management uses the subjective approach and applies an adjustment factor of +3 percent to the cost of capital for such risky projects. What is the maximum initial cost the company would be willing to pay for 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) Maximum cost ..........
17. Problem 11.20 (NPV) eBook A project has annual cash flows of $6,000 for the next 10 years and then $10,500 each year for the following 10 years. The IRR of this 20-year project is 11.42%. If the firm's WACC is 8%, what is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest cent. $
Question 23 Haig Aircraft is considering a project that has an up-front cost paid today at t = 0. The project will generate positive cash flows of $47,212 a year at the end of each of the next 3 years. The project's NPV is $40,927 and the company's WACC is 14.4%. What is the project's regular payback? 1.74 years 2.64 years O 2.04 years 1.44 years 2.34 years
11. Problem 11.20 (NPV) eBook A project has annual cash flows of $7,500 for the next 10 years and then $5,500 each year for the following 10 years. The IRR of this 20-year project is 11.33%. If the firm's WACC is 11%, what is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest cent. BO $
Saved Help Sa Problem 12-16 WACC and NPV Pink, Inc., is considering a project that will result in Initial aftertax cash savings of $1.77 million at the end of the first year, and these savings will grow at a rate of 1 percent per year indefinitely. The firm has a target debt-equity ratio of 75, a cost of equity of 11.7 percent, and an aftertax cost of debt of 4.5 percent. The cost-saving proposal is somewhat riskler than the usual projects the firm undertakes; management uses the subjective approach and applies an adjustment factor of +2 percent to the cost of capital for such risky projects. What is the maximum initial cost the company would be willing to pay for the project? (Do not round intermedlate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g, 1,234,567.89.) Maximum cost S 180,986,062.00
Problem 12-21 WACC and NPV [LO 4] Ariana, Incorporated, is considering a project that will result in initial aftertax cash savings of $5.4 million at the end of the first year, and these savings will grow at a rate of 3 percent per year, indefinitely. The firm has a target debt-equity ratio of .53, a cost of equity of 13.3 percent, and an aftertax cost of debt of 6.7 percent. The cost-saving proposal is somewhat riskier than the usual project the firm undertakes; management uses the subjective approach and applies an adjustment factor of +2 percent to the cost of capital for such risky projects. Calculate the required return for the project. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. What is the maximum cost the company would be willing to pay for this project? Note: Do not round
14 NuPress Valet has a proposed investment with an initial cost of $62 million and cash flows of $12.5 million for 5 years. Debt represents 44 percent of the capital structure. The cost of equity is 13.7 percent, the pretax cost of debt is 8.5 percent, and the tax rate is 34 percent. What is the company's WACC?
QUESTION 6 ABC Inc. is evaluating an investment project that lasts for three years. The project has the cost of capital of 15% and requires an initial investment of $2 million. There is a 40% chance that the project would be successful and would generate annual free cash flows of $3 million per year during the next three years. There is a 60% chance that the project would be less successful and would generate only $2 million per year during the next three years. However, ABC recognizes that if the project is successful, it could invest $3 million at the end of the second year to expand the project and receive a free cash flow of $6 million at the end of third year. ABC estimates that the net project value (NPV) of the project without the option to expand and the NPV of the project with the option to expand would be closest to: A. The NPV of the project without the option to expand is $2.57 million and the NPV of the project with the option to expand is $4.85 million B. The NPV of the…
Problem 10.2 Kingston, Inc. management is considering purchasing a new machine at a cost of $4,141,424. They expect this equipment to produce cash flows of $780,365, $825,291, $928,252, $1,072,646, $1,304,417, and $1,199,888 over the next six years. If the appropriate discount rate is 15 percent, what is the NPV of this investment? (Enter negative amounts using negative sign e.g. -45.25. Round answer to 2 decimal places, e.g. 15.25.) The NPV is Click if you would like to Show Work for this question: Open Show Work
Question 20 Solar Energy is currently examining a project that will produce cash inflows of $21,405 a year for two years followed by $12,390 in year 3. The cost of the project is $38,716. What is the profitability index of the project if the discount rate is 11 percent? A Moving to another question will save this response.
Problem 21 Compute the (1) net present value and (ii) discounted payback period of the following capital budgeting projects. The firm's required rate of return is 12 percent. Projects Year 123 Zeta $(50,000) 20,000 15,000 30,000 Omega $(45,000) 42,000 9,000 1,850 Based on your calculations, which project will be selected if you have to choose only one of the two projects?

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