A firm has a debt-to-equity of 0.69 and a market-to-book ratio of 3.0. What is the ratio of the book value of debt to the market
1 answer:
You might be interested in
Answer:
Present value of Project X is $41990.6
Present value of Project Y is $34605.2
Explanation:
<u>PROJECT X </u>
PARTICULARS YEAR Cost/Value Present Value factor 15% Present Value
Initial Cost 0 45000 1 45000
Maintenance 1- 5 8000 3.352 26816
cost
Annual Depreciation 1-5 (8600) 3.352 (28827.2)
Salvage Value 5 (2000) 0.4971 <u> (994.2) </u>
Present value of cash outflows 41,990.6
<u>PROJECT Y</u>
<u>PARTICULARS </u> YEAR COST/VALUE Present value factor 15% PRESENT VALUE
Initial Cost 0 58000 1 58000
Maintenance 1- 5 4000 3.352 13409
cost
Annual Depreciation 1-5 (9200) 3.352 (30838.4)
Salvage Value 5 12000 0.4971 <u> (5965.2) </u>
Present Value of cash outflow 34605.2
Note: Figures in parenthesis denote cash inflow
Working Notes
Depreciation for project X = = $8600 p.a
Depreciation for project Y = = $9200 p.a
Decision: Since present value of cash outflows is lesser for Project Y, it should be taken up.