An all-equity firm has a 20% operating margin, a 0% tax rate, and a 10% hurdle. The one period project’s base case NPV = $2,000. What is the impact on NPV if the operating margin remains the same and sales are $200 higher than base case?
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- An all-equity firm has a 20% operating margin, a 0% tax rate, and a 10% hurdle. The one period project’s base case
NPV = $2,000. What is the impact on NPV if the operating margin remains the same and sales are $200 higher than base case?
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- Ogier Incorporated currently has $800 million in sales, which are projected to grow by 10% in Year 1 and by 5% in Year 2. Its operating profitability ratio (OP) is 10%, and its capital requirement ratio (CR) is 80%? What are the projected sales in Years 1 and 2? What are the projected amounts of net operating profit after taxes (NOPAT) for Years 1 and 2? What are the projected amounts of total net operating capital (OpCap) for Years 1 and 2? What is the projected FCF for Year 2?Your business plan for your proposed start-up firm envisions first-year revenues of $120,000, fixed costs of $30,000, and variable costs equal to one-third of revenue.a. What are expected profits based on these expectations?b. What is the degree of operating leverage based on the estimate of fixed costs and expected profits?c. If sales are 10% below expectation, what will be the decrease in profits?d. Show that the percentage decrease in profits equals DOL times the 10% drop in sales.e. Based on the DOL, what is the largest percentage shortfall in sales relative to original expectations that the firm can sustain before profits turn negative?f. What are break-even sales at this point?g. Confirm that your answer to (f) is correct by calculating profits at the break-even level of sales.Alpha Inc. has a target debt-to-value ratio of .6. The pretax cost of debt is 10 percent, the tax rate is 21 percent, and the unlevered cost of equity 14 percent. A project the firm is considering has a cash flow to the levered equity holders of $49,661 and an initial unborrowed cost of $220,000. What is the NPV of the project?
- You are a consultant who has been hired to evaluate a new product line for Markum Enterprises. The upfront investment required to launch the product line is $8 million. The product will generate free cash flow of $0.70 million the first year, and this free cash flow is expected to grow at a rate of 6% per year. Markum has an equity cost of capital of 10.8%, a debt cost of capital of 6.38%, and a tax rate of 25%. Markum maintains a debt-equity ratio of 0.50. a. What is the NPV of the new product line (including any tax shields from leverage)? b. How much debt will Markum initially take on as a result of launching this product line? c. How much of the product line's value is attributable to the present value of interest tax shields? Question content area bottom Part 1 a. What is the NPV of the new product line (including any tax shields from leverage)? The NPV of the new product line is million. (Round to two decimal places.) Part 2 b. How much debt will…You are a consultant who has been hired to evaluate a new product line for Markum Enterprises. The upfront investment required to launch the product line is $8 million. The product will generate free cash flow of $0.70 million the first year, and this free cash flow is expected to grow at a rate of 6% per year. Markum has an equity cost of capital of 10.8%, a debt cost of capital of 6.38%, and a tax rate of 25%. Markum maintains a debt-equity ratio of 0.50. a. What is the NPV of the new product line (including any tax shields from leverage)? b. How much debt will Markum initially take on as a result of launching this product line? c. How much of the product line's value is attributable to the present value of interest tax shields? Question content area bottom Part 1 a. What is the NPV of the new product line (including any tax shields from leverage)? The NPV of the new product line is $enter your response here million. (Round to two decimal places.)You are a consultant who has been hired to evaluate a new product line for Markum Enterprises. The upfront investment required to launch the product line is $7 million. The product will generate free cash flow of $0.76 million the first year, and this free cash flow is expected to grow at a rate of 6% per year. Markum has an equity cost of capital of 10.9%, a debt cost of capital of 5.35%, and a tax rate of 42%. Markum maintains a debt-equity ratio of 0.40. What is the NPV of the new product line (including any tax shields from leverage)? (Round to two decimalplaces.) How much debt will Markum initially take on as a result of launching this product line? (Round to two decimalplaces.) How much of the product line's value is attributable to the present value of interest tax shields? (Round to two decimalplaces.)
- In an effort to increase its customer base, a company set the project MARR at exactly the WACC. If equity capital costs 8% per year and debt capital costs 12.5% for the project, what is the equity-debt percentage mix of capital required to make the WACC = 10%?A company currently has a WACC of 10.6 percent and no debt. The tax rate is 21 percent. a. What is the company’s current cost of equity? b. If the firm converts to 40 percent debt with a cost of 6%, what will its cost of equity be? And the WACC? c. If the firm converts to 60 percent debt with a cost of 6% , what will its cost of equity be? And the WACC? d. What can you conclude from the values of the cost of equity and WACC obtained in b. and c. Please show excel formulasSIROM Scientific Solutions has $10 million of outstanding equity and $5 million of bank debt. The bank debt costs 5% per year. The estimated equity beta is 2. If the market risk premium is 9% and the risk-free rate is 3%, compute the weighted average cost of capital if the firm's tax rate is 30%.
- A firm has a profit margin of 15 percent on sales of $20,000,000. If the firm has debt of $7,500,000, total assets of $22,500,000, and an after-tax interest cost on total debt of 5 percent, what is the firm's ROA? Group of answer choices 8.4% 10.9% 12.0% 13.3% 15.1%A project will cost $30 in year 1 and generate earnings before interest, taxes and depreciation of $20 in year 1, $15 in year 2 and $10 in year 3. The inital cost is to be linearly depreciated over three years. The company has a marginal corporate income tax rate of 21% and the appropriate unlevered cost of capital for the project is 12%. a: What is the NPV of the project if the firm is all equity-financed? b: What is the APV of the project if the firm uses $30 debt finance in the first year at an expected rate of return of 5%? The company will pay interest in years 2 and 3 and pay off the loan in year 3An all-equity financed firm has a degree of operating leverage of 3, the sales of $250,000, the operating income of $50,000, and the net income of $40,000. If the sales drops to $220,000, what will be the new net income?
