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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

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Answer:

The solution to the following problem is done below.

Explanation:

a) Journalize the entries to record the admission of adam to the partnership.

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Kala, Capital                                                                         20,000

Adam, Capital                                                                                       20,000

Cash                                                                                      10,000

Kala, Capital                                                                                           8,000

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Adam, Capital                                                                                        24,000

b) Immediately after adam's admission to the partnership, leah sells one-fourth of her interest to denton for $35,000. journalize the entry to record the transaction.

Account Title                                                                          Dr            Cr

Leah, Capital                                                                        13,500

Denton, Capital                                                                                    13,500

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3 years ago
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A currency trader observes that in the spot exchange market, one U.S. dollar can be exchanged for 10.875 Mexican pesos or for 6.
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Answer:

d. 1.753 pesos/krone

Explanation:

The computation of the received pesos for exchange is shown below

Received pesos = Exchange value of one U.S dollar for Mexican pesos  ÷ Exchange value of one U.S dollar for Mexican pesos

= 10.875 ÷ 6.205

= 1.753 pesos/krone

It shows a relationship between the Exchange value of one U.S dollar for Mexican pesos and the Exchange value of one U.S dollar for Mexican pesos so that per pesos/krone can come

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3 years ago
QS 15-4 Raw materials journal entries LO P1 During the current month, a company that uses job order costing purchases $90,000 in
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Answer:

The journal entries are shown below:

Explanation:

The journal entries are as follows

Raw materials inventory $90,000  

      To  Cash  $90,000

(Being the raw material is purchase for cash is recorded)

Factory overhead $17,000  

         Raw materials inventory  $17,000

(Being the factory supplies is recorded)

Work in process inventory $66,100  

         Raw materials inventory $66,100

(Being the work in process is recorded)

Only these three entries are to be recorded)

8 0
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Answer:

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Explanation:

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Retention rate = 1 - dividend payout ratio = 1 - 0.30 = 0.70

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Substituting the relevant values into equation (1), we have:

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Therefore, the firm's sustainable growth rate is 13%.

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3 years ago
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adjust for non-cash items

add depreciation expense,                            $40,000

less gain on sale of plant assets,                    $14,000

adjust for changes in working capital

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increase in merchandise inventory              ($28,000)

increase in  prepaid expenses                       ($8,200)

increase in accounts payable                          $5,400

net cash provided by operating activities    $168,600                                                                        

4 0
3 years ago
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