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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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Diano4ka-milaya [45]

The correct answer is B) traditional.

Aflak Corporation, an Omani firm, is currently planning goods market in India. Aflak Corporation will most likely discover that traditional beliefs and values are more open to change in India.

When a multinational company is planning on initiating operations in another country, it has to be very sensible of the traditional values of that country. The company is getting into a new market and people could have different belief systems, different culture, traditions, and customs, that need to be carefully assessed by the multinational company if they are about to be successful in the new country.

This is the case of India, which has always have very strict traditional values, although younger generations are relaxing those values in recent years.

8 0
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Andrew wants to purchase a new computer and go to the caribbean for spring break. the computer is priced at 1299, and the vacati
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Andrew writes a check for $1,299 which is the  medium of exchange.

What is the way of transaction ?

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Here,

Andrew can easily determine that the price of the computer is more than the price of the vacation = Unit of Account

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3 0
1 year ago
Creative Canopies (CC) is a manufacturer of flexible canopies for athletic facilities. CC has contracts with 3 universities to i
ElenaW [278]

Answer:

Creative Canopies (CC)

With gross profits of $10,000, the least profitable is:

B. UCLA

Explanation:

a) Maintenance Costs of Canopies:

Support Activity      Driver                    Cost per Driver Unit

Major refinishes:    Hours on jobs                 $55

Minor touchups:     Number of visits          $400

Communication:     Number of calls             $25

b) Customer Data:

University    Hours      major Visits    minor Calls=

USD             100               7                     12

USC              90               5                     15

UCLA           120              6                      9

c) Calculation of the Cost of Canopy Maintenance for each customer:

University  Hours  Major   Minor  Major          Minor     Commun-  Total

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USD           100         7         12       $5,500        $2,800      $300    $8,600  

USC            90         5         15       $4,950        $2,000      $375    $7,325

UCLA         120        6          9      $6,600        $2,400      $225    $9,225

d) Calculation of net income from each customer:

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USD               $10,000                 $8,600                          $1,600

USC               $10,000                 $7,325                         $2,675

UCLA            $10,000                 $9,225                            $775

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Return on common stockholders' equity = net income / average common stockholders' equity = $386,000 / [($1,946,000 + $1,724,000) = 21.04%

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