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
Vikentia [17]
3 years ago
11

The All-Mine Corporation is deciding whether to invest in a new one-year project. The project would have to be financed by equit

y, the cost is $2,000, and the return will be a guaranteed $2,500 in one year. The discount rate for both bonds and stock is 15 percent and the tax rate is zero. The predicted cash flows excluding this new project are $4,500 in a good economy, $3,000 in an average economy, and $1,000 in a poor economy. Each economic outcome is equally likely to occur and the promised debt repayment is $3,000. Should the company take the project
Business
1 answer:
Lerok [7]3 years ago
5 0

A. NPV of the project

NPV = -2000 + 2500/(1.15) = $173.91

B. Value of the firm and its debt and equity components before and after the project addition.

Determine expected cash flows before the project.

($3,000 + $3,000 + $1,000)/3)/1.15 = $2,333.33/1.15 = $2,028.99

($1,500 + $0 + $0)/3)/1.15 = $500/1.15=$434.78

Determine value with project.

($3,000 + $3,000 + $3,000)/3)/1.15 =$3,000/1.15 = $2,608.70

($4,000 + $2,500 + $500)/3)/1.15 = $2,333.33/1.15=$2,028.99

C. The company should not take the project because the NPV does not go to equity but to bond holders.

You might be interested in
You work for a leveraged buyout firm and are evaluating a potential buyout of UnderWater Company.​ UnderWater's stock price is $
sladkih [1.3K]

Answer:

a. The shareholders will want to tender their shares.

c.  The gain will be $25.31 million – $23.44 million = $1.87 million.

Explanation:

a. The value of the firm is 1.25 million shares* 15= $18.75 million.

Increase in value, 18.75*135% = $25.31 million, so now this is the value of the firm

If 50% of the shares are bought for $18.75 Million, you will buy 0.625 million shares, so the total amount that will be paid is $11.72 million.

Now, the money against shares will be borrowed as collateral. This means that the new value of the equity will be $25.31 million – $11.72 million = 13.59 million.

1.25 million shares are there so now the price of the share will be  =  $10.87 million ($13.59 million/$1.25 million = $ 10.87 million).

b.The price of the shares has decreased from $13.59 to $10.87 after the tender offer, everyone will want to tender their shares for $18.75.

c. Supposing everyone tenders the shares and you will buy at $18.75 per share, you will pay $23.44 (18.75 per share *1.25 million shares) to acquire the company and it will be worth $25.31 million.

The gain will be $25.31 million – $23.44 million = $1.87 million.

3 0
3 years ago
Is it wise for a firm to employ a worker at $20 per hour when another worker does the same job for $10 per hour? It would be a r
grandymaker [24]
The right answer for the question that is being asked and shown above is that: "The government will pay firms to give some workers extra pay to increase the total economy." <span>Is it wise for a firm to employ a worker at $20 per hour when another worker does the same job for $10 per hour? </span>
6 0
3 years ago
Toby operates a small deli downtown. the deli industry is monopolistically competitive. toby says he is producing the quantity t
evablogger [386]
Here is the answer that completes the statement above.
Regarding the situation of Toby who runs a small deli downtown, if he is already maximizing his profits, therefore, we can say that the number or amount of delis will soon increase or rise. Hope this answers your question.
5 0
3 years ago
Hi<br> wasssup<br> friend me so yeah
shutvik [7]

Answer:

ok

Explanation:

can i get brainliest? plzzzz

5 0
2 years ago
Read 2 more answers
General electric has an up-or-out policy, where key personnel in underperforming units are pressured to boost performance to acc
olasank [31]
This is an example of Tying rewards and incentives directly to the achievement of strategic and  financial targets.
By doing this, general Electric aimed to create an objective measurement for all of its emloyees that motivate them to keep increasing their performance if they hope to stay as an employee in that company. Through this method, Jack Welch managed to increase the company's value for around 4000% during 20 years of his reign.
8 0
3 years ago
Other questions:
  • The following balances come from the financial statements of Way Industries: Sales revenue $850,000; Accounts receivable $280,00
    7·1 answer
  • Lupo Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on machine-hours. The
    7·1 answer
  • Which one of the following is a source of cash?A. decrease in inventoryB. increase in accounts receivableC. decrease in accounts
    7·2 answers
  • Acquired $60,000 cash from the issue of common stock. Received an $8,200 cash advance for services to be provided in the future.
    15·1 answer
  • Last month, when 10,000 units of a product were manufactured, the cost per unit was $60. At this level of activity, variable cos
    5·1 answer
  • The _____ is a u.s. law that prohibits u.s. companies from bribing or otherwise corrupting foreign government officials to win f
    10·1 answer
  • The internal financial statements of Vera Incorporated show that their beaded purses incurred an operating loss in the most rece
    13·1 answer
  • I have a resturant which is famous for hydrabdi biryani but the ingredients are not avilable in the resturant suddenly if the gu
    5·2 answers
  • A service business may have some additional operating expenses like rent, insurance, commissions, and so on. Most of these expen
    9·2 answers
  • Answer these questions as though you are preparing an audience profile for an essay about a favorite television show. what do my
    10·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!