a)
To determine: The share prices after announcing the expansion plan.
Introduction:
The cost of buying securities on exchange is known as share price. Stock price could be affected by the reputation of an organisation, present economic condition, and instability in the market.
b)
To determine: The number of shares that the firm needs to issue.
Introduction:
The cost of buying securities on exchange is known as share price. Stock price could be affected by the reputation of an organisation, present economic condition, and instability in the market.
c)
To determine: The share price and find the difference from part (a).
Introduction:
The cost of buying securities on exchange is known as share price. Stock price could be affected by the reputation of an organisation, present economic condition, and instability in the market.
d)
To determine: The share price and two benefits of debt financing after comparing answer with part (c).
Introduction:
The cost of buying securities on exchange is known as share price. Stock price could be affected by reputation of an organisation, present economic condition, and instability in the market.
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Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
- The Pinkerton Publishing Company is considering two mutually exclusive expansion plans. Plan A calls for the expenditure of 50 million on a large-scale, integrated plant that will provide an expected cash flow stream of 8 million per year for 20 years. Plan B calls for the expenditure of 15 million to build a somewhat less efficient, more labor-intensive plant that has an expected cash flow stream of 3.4 million per year for 20 years. The firms cost of capital is 10%. a. Calculate each projects NPV and IRR. b. Set up a Project by showing the cash flows that will exist if the firm goes with the large plant rather than the smaller plant. What are the NPV and the IRR for this Project ? c. Graph the NPV profiles for Plan A, Plan B, and Project .arrow_forwardCameron Enterprises, Inc. is considering launching a new corporate project. The company will have to make Capital Investments, Working Capital investments, andgenerate Cash Flows from Operating the new project. The Equipment required for theproject will cost $3,000,000 today, will last for three years (the length of the project),and is estimated at the time of purchase to sell for $300,000 at the end of its life. Revenue is projected at $5.0M in the first year, $5.3M in the second year, $5.6M in the third year, $5.9 in the fourth year, $6.0M in the fifth year, and $5.0M in the final year. The investment in Net Working Capital is $300,000 initially, with the year-end values at 10% of that year's sales. The company uses Straight-Line depreciation and has a Tax Rate of 27%. The appropriate discount rate for the risks involved is 10%. Per your DCF analysis of the project, what is the cash flow from the change in net working capital in year six? Multiple Choice None of the…arrow_forwardGone Mad Company Limited is considering two mutually exclusive projects to expand its operations: (1) A new product line to enhance sales (2) Investment in Research and Development (R&D) which is also expected to boost sales. (3) Each project has an initial investment of $325,000. The company’s board of directors has set up a minimum 3-year payback period requirement and has set its cost of capital at 9%. The incremental cash inflows associated with the two projects are as follows: Year incremental Cash Inflows (CFt) New Line R&D 1 $120,000 $100,000 2 120,000 115,000 3 120,000 125,000 4 120,000 140,000 1) Calculate the NPV of each project at discount rate of 9%, as well as the Internal Rate of Return of both projects and discuss the…arrow_forward
- The Pinkerton Publishing Company is considering two mutually exclusive expansion plans. Plan A calls for the expenditure of $50 million on a large-scale, integrated plant that will provide an expected cash flow stream of $8 million per year for 20 years. Plan B calls for the expenditure of $15 million to build a somewhat less efficient, more labor-intensive plant that has an expected cash flow stream of $3.4 million per year for 20 years. The firm's cost of capital is 10%. a. Calculate each project's NPV. Do not round intermediate calculations. Round your answers to the nearest dollar. Project A: $ Project B: $ Calculate each project's IRR. Round your answers to two decimal places. Project A: Project B: b. Set up a Project A by showing the cash flows that will exist if the firm goes with the large plant rather than the smaller plant. Round your answers to the nearest dollar. Use a minus sign to enter cash outflows, if any. Project A Cash Flows $ Year $ ܂ 1-20 % What is the NPV for this…arrow_forwardJacob Inc. is considering a capital expansion project. The initial investment of undertaking this project is $188,500. This expansion project will last for five years. The net operating cash flows from the expansion project at the end of year 1, 2, 3, 4 and 5 are estimated to be $28,500, $38,780, $58,960, $77,680 and $95,380 respectively. Jacob has a weighted average cost of capital of 18%. Based on Jacob’s weighted average cost of capital, what is the profitability index (PI)of undertaking this project? That is, what is the profitability index if the weighted average cost of capital is used as the discount rate? Shall Jacob undertake the investment project?arrow_forwardAxis Corp. is considering an investment in the best of two mutually exclusive projects. Project Kelvin involves an overhaul of the existing system; it will cost $10,000 and generate cash inflows of $10,000 per year for the next 3 years. Project Thompson involves replacement of the existing system; it will cost $265,000 and generate cash inflows of $61,000 per year for 6 years. Using a(n) 8.56% cost of capital, calculate each project's NPV, and make a recommendation based on your findings. The NPV of project Kelvin is $ (Round to the nearest cent.)arrow_forward
- Dayton Mechanical, Inc. is currently evaluating a potential new investment. The investment will be financed with 5700,000 of debt and $1,200,000 of equity. The (unleveraged) after-lax cash flows, the CATs, expected to result from the investment are $1 million per year for three years, after which time the project is expected to be sold off for a net after-tax $1 million in cash. The debt financing will take the form of three-year debt with interest payments of 12% per year on the remaining balance. Principal payments will be $100,000 in year 1, $200,000 in year 2, and $400,000 at the end of year 3. The net-benefit-to-leverage factor, T^, is 0.25 for this investment. The (unleveraged) required return for the project is 20%. What is the present value of the interest tax shield from the project?arrow_forward1. Futura Limited is considering a capital project about which the following information is available. I The investment outlay on the project will be 200 million. This consists of 7150 million on the plant and machinery and 750 million on net working capital. The entire outlay will be incurred in the beginning. The life of the project is expected to be 7 years. At the end of 7 years, fixed assets will fetch a net salvage value of 748 million whereas net working capital will be liquidated at its book value. | The project is expected to increase the revenues of the firm by 7250 million per year. The increase in costs on account of the project is expected to be 100 million per year (This includes all items of cost other than depreciation, interest, and tax). The tax rate is 30 percent. | Plant and machinery will be depreciated at the rate of 25 percent per year as per the written down method. (a) Estimate the post-tax cash flows of the project. (b) Calculate the IRR of the project.arrow_forwardFun With Finance is considering a new 3-year expansion project that requires an initial fixed asset investment of $4.752 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will have a market value of $369,600. The project requires an initial investment in net working capital of $528,000. The project is estimated to generate $4,224,000 in annual sales, with costs of $1,689,600. The tax rate is 31 percent and the required return on the project is 12 percent. Required: (a) What is the project's year O net cash flow? (Click to select) ▼ (b)What is the project's year 1 net cash flow? (Click to select) (c) What is the project's year 2 net cash flow? (Click to select) v (d)What is the project's year 3 net cash flow? (Click to select) ✓ (e)What is the NPV? (Click to select) varrow_forward
- The management of SoComfy Hotel wishes to capitalize on an investment project that will cost the management to pay $85,000 as an initial cost. This project will take three years to finish with the net cash flows stream of $18,000 for the first year, $21,000 for the second year, and $22,500 for the third year. Should the management accept the project by analyzing the net present value (NPV) of the cash flow stream if they have 12.00% minimum required rate of return on the project?arrow_forwardOrca Industries is considering the purchase of Shark Manufacturing. Shark is currently a supplier for Orca and the acquisition would allow Orca to better control its material supply. The current cash flow from assets for Shark is $6.8 million. The cash flows are expected to grow at 5 percent for the next five years before leveling off to 2 percent for the indefinite future. The costs of capital for Orca and Shark are 9 percent and 7 percent, respectively. Shark currently has 3 million shares of stock outstanding and $25 million in debt outstanding. What is the maximum price per share Orca should pay for Shark? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Price per sharearrow_forwardJenkins Corporation is investing in a new piece of equipment at a cost of $6 million. The project is expected to generate annual cash flows of $1,850,000 over the next six years. The firm's cost of capital is 20 percent. What is the project's Profitability Index (PI)? (Do not round intermediate computations, but round final answer to the nearest dollar.) O 1.025 O 1.250 .9746 O 1.445arrow_forward
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTIntermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning