Wilde Software Development has a 10% unlevered cost of equity. Wilde forecasts the following interest expenses, which are expected to grow at a constant 3% rate after Year 3. Wilde's tax rate is 25%. Interest expenses Year 1 Year 2 Year 3 $85 $120 $160 a. What is the horizon value of the interest tax shield? Do not round intermediate calculations. Round your answer to the nearest cent. $ b. What is the total value of the interest tax shield at Year 0? Do not round intermediate calculations. Round your answer to the nearest cent. $
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- 1. If the interest rate is 8% per year, what decision would you make based on the decision tree diagram in Figure below. (0.6) Introduce New Product $200,000 profit per year for six years, starting at EOY 3 -$1,000,000 at ΕΟΥ 2 (0.4) $280,000 profit per year for six years, starting at ΕΟΥ Year 0 $0 profit/yr. for 8 years Do NothingCorona Cookies has a book value of equity of $11,000.Residual income one year from now is expected to be $500.Residual income is expected to grow at 1.5% annually, forever. If the correct required return is 17%,What is the value of Corona according to the residual income model? please do not give solution in image formatStart with the partial model in the file Ch21 P08 Build a Model.xlsx on the textbook’s Web site. Kasperov Corporation has an unlevered cost of equity of 12% and is taxed at a 40% rate. The 4-year forecasts of free cash flow and interest expenses are shown in the following table; free cash flow and interest expenses are expected to grow at a 5% rate after Year 4. Using the compressed APV model, answer the following questions. INPUTS (In Millions) Projected Year: 1 2 3 4 Free cash flow $200 $280 $320 $340 Interest expense $100 $120 $120 $140 Calculate the current value of unlevered operations. Calculate the estimated horizon value of the tax shield at Year 4 (i.e., immediately after the Year-4 free cash flow). Calculate the current value of the tax shield. Calculate the current total value.
- music studio predicts its future yearly net income (loss) to be as follows: Year 1: - $120Year 2: + $20Year 3: + $90Year 4: - $10Year 5: + $30Year 6: + $30Year 7: + $30Year 8: + $40 What is the NPV of the company, considering a discount rate of 10%?(Ignore income taxes in this problem.) If an investment of $14,760 now will yield $18,000 at the end of one year, then the internal rate of return for this investment to the nearest whole percentage is: Select one: a. 14% b. 18% c. 22% d. 28%1. If the interest rate is 8% per year, what decision would you make based on the decision tree diagram in Figure below. (0.6) Introduce New Product $200,000 profit per year for six years, starting at ΕΟΥ 3 -$1,000,000 at ΕΟ 2 (0.4) $280,000 profit per year for six years, starting at ΕΟΥ 3 Year 0 $0 profit/yr. for 8 years Figure 10.3. Decision Tree Diagram Do Nothing
- Finance Whadden National Bark is undertaking statec GAP analysis. In the one yoar time bucket, it holds $43 million in rate-sen income if interest rates are expected to change by 1.28%? . Round your final answer to the nearest dollar (Ex. $O) and submit decreases as a negative.Light company Intends to introduce a soft drink in the market in the next year. The projected revenues and expenses for the next five years are as follows: Year 1 2 3 4 Revenues 300M 200M 315M 420M Expenses 160M 50M 115M 200M The initial capital outlay is 500M which will be depreciated over the four-year period. The prevailing tax rate is 30%. What is the Accounting Rate of Return (ARR)? Select one: A. 14.7% B.21% C.25.5% D.None of the aboveA firm will earn a taxable net return of $500 million next year. If it took on debt today, it would have to pay creditors\varepsilon(rDebt) = 5% + 10% x wDebt2. Thus, if the firm has 100% debt, the financial markets would demand 15% expected rate of return. Further, assume that the financial markets will lend the firm capital at this overall net cost of 15%, regardless of how the firm is financed. The firm is in the 25% marginal tax bracket. 1. If the firmis fully equity-financed, what is its value? 2. Using APV, if the firm is financed with equal amounts of debt and equity today, what is its value? 3. Using WACC, if the firm is financed with equal amounts of debt and equity today, what is its value? 4. Does this firm have an optimal capital structure? If so, what is its APV and WACC?
- (Leveraged returns) You have a chance to make a $25,000 one-year investment. The invest- ment is expected to earn 18%, and there are no taxes. If you borrow $10,000 at 10% and put up the other $15,000 with your own money, what will be your expected return on the $15,000?A company forecasts free cash flow of $400 at Year 1 and $600at Year 2; after Year 2, the FCF grow at a constant rate of 5%.The company forecasts the tax savings from interest deductionsas $200 in Year 1, $100 in Year 2; after Year 2, the tax savingsgrow at a constant rate of 5%. The unlevered cost of equityis 9%. What is the horizon value of operations at Year 2?($15,750.0) What is the current unlevered value of operations?($14,128.4) What is the horizon value of the tax shield at Year 2?($2,625.0) What is the current value of the tax shield? ($2,477.1)What is the levered value of operations at Year 0? ($16,605.5)A firm will report annual Net Income of $50 and depreciation expense of $20 forever in the future. With a tax rate of 30%, how much is the present value of all future “tax shields”? Assume r = 4%.