1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Margaret [11]
3 years ago
11

Tom is analyzing a project with an initial cost of $38,000 and free cash flow (FCF) of $29,000 a year for 2 years. This project

is an extension of the firm's current operations and thus is equally as risky as the current firm. The firm uses only debt and common stock to finance its operations and maintains debt-equity ratio of 0.6. The pre-tax cost of debt is 11.0 percent and the cost of equity is 13.0 percent. The tax rate is 34 percent. What is the net present value of this project
Business
1 answer:
Hitman42 [59]3 years ago
3 0

Answer:

$11,761.10

Explanation:

For computing the net present value first we have to determine the weighted average cost of capital which is shown below:

WACC = Cost of debt × weighted of debt × (1 - tax rate) + cost of equity ×  weighted of debt

= 11% × 0.6 ÷ 1.6 × (1 - 0.34) + 13% × 1 ÷ 1.6

= 2.72% + 8.13

= 10.85%

The 1.6 is come from

= 1 + 0.6

= 1.6

The debt equity is 0.6 i.e 0.6 is for debt and equity is 1

Now the net present value is

= Present value of annual year cash flows - initial investment

where,

Present value of annual year cash flows

= Annual year cash inflows × PVIFA factor for 10.85% at 2 years

= $29,000 × 1.7159

= $49,761.10

And, the initial investment is $38,000

So, the net present value is

= $49,761.10 - $38,000

= $11,761.10

You might be interested in
The following summary transactions occurred during 2021 for Bluebonnet Bakers: Cash Received from: Collections from customers $
levacccp [35]

Answer:

multiple lang yan ate be

8 0
2 years ago
Which of the following is the number one method of financing for most new businesses?
Sergeeva-Olga [200]
Previous business sales
8 0
2 years ago
Read 2 more answers
Radford is a small company that manufactures automobile bearings. Managers at the company must make decisions on the kind and th
Lynna [10]

Answer:

a. corporate finance

Explanation:

Corporate finance -

It refers to the financial area , which is expertise in the source of funding , is referred to as corporate funding.  

The action taken by the manager to increase the value of firms to the shareholders , this is the main focus of the corporate finance.  

Hence , from the given scenario of the question,  

The correct option is a. corporate finance .

8 0
3 years ago
The Humongous Food Store (HFS) has a turnover ratio of 12. The turnover ratio is revenue divided by average inventory. This mean
Kazeer [188]

Answer: compare his turnover ratio to other grocery stores' ratios.

Explanation: The manager should "compare his turnover ratio to other grocery stores' ratios" since Humongous Food Store (HFS) is losing money but have a turnover ratio of 12.

A turnover ratio of 12 means that they sold everything in the store once per month. Turnover ratio is the percentage of mural fund or portfolio holdings that have been replaced in a given year or 12 months period.

8 0
3 years ago
On January 1, Puckett Company paid $1.6 million for 50,000 shares of Harrison’s voting common stock, which represents a 40 perce
Marysya12 [62]

Answer:

The $1,724,000 is the investment amount which is to be recorded as of December 31.

Explanation:

For computing the investment income, the calculation is shown below:

= Paid value + net income percentage - dividend

where,

Paid value= $1.6 million

Net income percentage = Net income × percentage

                                        = $560,000 × 40%

                                        = $224,000

And, dividend = number of shares × per share

                       = 50,000 × 2

                       = $100,000

So, the investment amount would be

= Paid amount + net income percentage - dividend

= $1,600,000 + $224,000 - $100,000

= $1,724,000

Hence, the $1,724,000 is the investment amount which is to be recorded as of December 31.

3 0
3 years ago
Other questions:
  • The final task in designing a management information system (mis) is _____.
    11·1 answer
  • In a market with 1,000 identical firms, the short-run market supply is the
    5·1 answer
  • What is a critical factor in determining whether something gets produced as a public good?
    15·1 answer
  • A lockbox plan is most beneficial to firms that Select one: a. have widely dispersed manufacturing facilities. b. have a large m
    13·1 answer
  • What is income demand curve?<br>​
    11·1 answer
  • Manufactured truck parts are part of which industry
    7·2 answers
  • At which event must special care be taken when prepping food for your guest
    14·1 answer
  • 9. How is planning made any why is it important ? Explain .<br><br>​
    14·1 answer
  • The government has the ability to influence the level of output in the short run using monetary and fiscal policy. There is some
    7·1 answer
  • Why would it be helpful for you to study ethics in short periods of time rather than long periods
    11·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!