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Blababa [14]
3 years ago
8

A firm is evaluating a project with an initial investment at time 0 of $640,000. The present value of the levered cash flows is

$729,400 and the net present value of the project is $157,000. Using the flow-to-equity method of valuation determine the amount borrowed.A. $89,400B. $67,600C. $54,300D. $64,000
Business
1 answer:
monitta3 years ago
8 0

Answer:

Using the flow-equity method of valuation the borrowed is $67600,option B.

Explanation:

In order to determine the amount borrowed in executing the project, we make use of the below formula which shows that we are working  backwards.

Amount borrowed=present value of cash inflows-levered cash flows

present value of cash inflows=net present value+initial investment

present value of cash inflows=$157000+$640000

present value of cash inflows=$797000

levered cash flows=$729400

Amount borrowed=$797000-$729400

amount borrowed =$67600

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Answer:

Products         Selling price   Unit variable cost

                                $                       $

Junior                     50                      15

Adult                       75                      25

Expert                     <u>110 </u>                   <u> 60</u>

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= 850 units x $235

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Total contribution ($135 x 850 units)   114,750

Less: Fixed cost                                     <u>114,750</u>

Net profit                                                   <u> 0</u>

                                                                                                                                                                             

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Break-even point in units is fixed cost divided per composite contribution margin per unit.

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