Problem 18-12 APV Longhorn, Incorporated, has produced rodeo supplies for over 20 years. The company currently has a debt-equity ratio of 60 percent and the tax rate is 25 percent. The required return on the firm's levered equity is 13 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 Cash Flow -$ 0 19,500,000 1 5,910,000 2 9,710,000 9,010,000 3 The company has arranged a debt issue of $9.93 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 $3,310,000 per year, completely retiring the issue by the end of the third year. What is the APV of the project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) APV
Problem 18-12 APV Longhorn, Incorporated, has produced rodeo supplies for over 20 years. The company currently has a debt-equity ratio of 60 percent and the tax rate is 25 percent. The required return on the firm's levered equity is 13 percent. The company is planning to expand its production capacity. The equipment to be purchased is expected to generate the following unlevered cash flows: Year Cash Flow -$ 0 19,500,000 1 5,910,000 2 9,710,000 9,010,000 3 The company has arranged a debt issue of $9.93 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 $3,310,000 per year, completely retiring the issue by the end of the third year. What is the APV of the project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) APV
Chapter11: The Cost Of Capital
Section: Chapter Questions
Problem 20PROB
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Transcribed Image Text:Problem 18-12 APV
Longhorn, Incorporated, has produced rodeo supplies for over 20 years. The company
currently has a debt-equity ratio of 60 percent and the tax rate is 25 percent. The
required return on the firm's levered equity is 13 percent. The company is planning to
expand its production capacity. The equipment to be purchased is expected to generate
the following unlevered cash flows:
Year
Cash Flow
-$
0
19,500,000
1
5,910,000
2
9,710,000
9,010,000
3
The company has arranged a debt issue of $9.93 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 $3,310,000 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)
APV
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