PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 19, Problem 19PS
Summary Introduction
To determine: APV
b)
Summary Introduction
To discuss: The change in APV
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Consider a project to produce solar water heaters. It requires a $10 million investment and offers a level after-tax cash flow of $1.68
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Consider a project to produce solar water heaters. It requires a $10 million investment and offers a level after-tax cash flow of $1.64
million per year for 10 years. The opportunity cost of capital is 10.35%, which reflects the project's business risk.
a. Suppose the project is financed with $4 million of debt and $6 million of equity. The interest rate is 6.55% and the marginal tax
rate is 21%. An equal amount of the debt will be repaid in each year of the project's life. Calculate APV.
Note: Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations. Round your answer to the
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b. If the firm incurs issue costs of $650,000 to raise the $6 million of required equity, what will be the APV?
Note: Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations. Round your answer to the
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Consider a project to produce solar water heaters. It requires a $10 million investment and offers a level after-tax cash flow of $1.71
million per year for 10 years. The opportunity cost of capital is 11.45%, which reflects the project's business risk.
a. Suppose the project is financed with $5 million of debt and $5 million of equity. The interest rate is 7.55% and the marginal tax rate
is 21%. An equal amount of the debt will be repaid in each year of the project's life.
Calculate APV. (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations. Round your answer to
the nearest whole number.)
Adjusted present value
b. If the firm incurs issue costs of $580,000 to raise the $5 million of required equity, what will be the APV? (Enter your answer in
dollars, not millions of dollars. Do not round intermediate calculations. Round your answer to the nearest whole number. Negative
amount shoud be indicated by a minus sign.)
Adjusted present value
Chapter 19 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 19.A - The U.S. government has settled a dispute with...Ch. 19.A - You are considering a five-year lease of office...Ch. 19 - WACC True or false? Use of the WACC formula...Ch. 19 - WACC The WACC formula seems to imply that debt is...Ch. 19 - Prob. 3PSCh. 19 - Prob. 4PSCh. 19 - WACC Whispering Pines Inc. is all-equity-financed....Ch. 19 - WACC Table 19.3 shows a book balance sheet for the...Ch. 19 - WACC Table 19.4 shows a simplified balance sheet...Ch. 19 - Prob. 8PS
Ch. 19 - WACC Nevada Hydro is 40% debt-financed and has a...Ch. 19 - Flow-to-equity valuation What is meant by the...Ch. 19 - APV True or false? The APV method a. Starts with a...Ch. 19 - APV A project costs 1 million and has a base-case...Ch. 19 - APV Consider a project lasting one year only. The...Ch. 19 - APV Digital Organics (DO) has the opportunity to...Ch. 19 - Prob. 17PSCh. 19 - Prob. 18PSCh. 19 - Prob. 19PSCh. 19 - Prob. 20PSCh. 19 - Prob. 22PSCh. 19 - Company valuation Chiara Companys management has...Ch. 19 - Prob. 26PSCh. 19 - Prob. 27PS
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