Fast Securities Ltd is looking into an investment of $100,000. The investment is expected to generate a net operating profit after tax (NOPAT) of $20,000. Given the firm’s weighted average cost of capital of 10% and tax rate of 20%, calculate the economic value added (EVA) of the investment. Should the firm accept or reject the investment? Give your reason(s).

Q: You are evaluating the potential purchase of a small business currently generating $ 42,500 of…

A: The computation as follows: Hence, the value of firm should be $814028.99.

Q: Nicky "O" is a transport company that wishes to evaluate an investment in new production machinery.…

A: Since you have asked a specific part (1) to solve. So, we will solve the same for you.

Q: Icarus Airlines is proposing to go public, and you have been given the task of estimating the value…

A: Value of Firm using FCFF approach FCF = Net operating profit after tax - Investment during the…

Q: An company uses a technology which it purchased for $15 million. Operating costs are $2 million per…

A: IRR stands for internal rate of return and refers to a method that is used for analyzing the…

Q: Finnegan Company plans to invest in a new operating plant that is expected to cost $762,500. The…

A: Formulas that are used:-

Q: Ben Corporation is deciding whether to pursue a restricted or relaxed working capital investment…

A: Times Interest Earned ratio is a measure of a company abilitybto meet out its debt (Interest…

Q: Suppose that Corporation is to consider a new project that requires $0.8 million finance with the…

A: The addition in a valuation of a corporation is based on the net additional profit from new…

Q: You are asked to evaluate the following project for a corporation with profitable ongoing…

A: Net present value is a capital budgeting techniques which makes the decision making process easier…

Q: An investor chooses to support your new venture by investing $400,000. At a tax rate of 20%, the…

A: 1.Calculation of Target Profit After tax Target Profit= 8% After tax Target Profit=400,000*8%=32000…

Q: A firm, whose cost of capital is 9 percent, may acquire equipment for $110,783 and rent it to…

A: Net Present Value (NPV) is a capital budgeting technique which uses a discount rate to bring all the…

Q: Turnbull Co. is considering a project that requires an initial investment of $1,708,000. The firm…

A: Weighted average cost of capital (WACC) is used as the hurdle rate for the projects. That is…

Q: CIP Co, a telecommunications company, is considering an investment of $150 million into a wind farm.…

A: We have to calculate present value using given discount rate.

Q: Olsen Outfitters Inc. believes that its optimal capital structure consists of 55% common equity and…

A: Weighted Average cost of capital (WACC) is a calculation of the total cost of capital. The capital…

Q: rate is 30% and the after-tax cash flow from sale of the property at the end of year 10 is expected…

A: The process through which a company evaluates possible big projects or investments is known as…

Q: The Webster Corp. is planning construction of a new shipping depot for its single  manufacturing…

A: Net Present Value: The net present value is the excess of the present value of cash inflows over the…

Q: Smiley’s Manufacturing Company is considering the purchase of a small business, J&R Raw Material…

A: Risk Averse Investors are those investors who believes in avoiding or not taking risk. These are the…

Q: Dinshaw Company is considering the purchase of a new machine. The invoice price of the machine is…

A: GIVEN   Dinshaw Company is considering the purchase of a new machine. The invoice price of the…

Q: Turnbull Co. is considering a project that requires an initial investment of $570,000. The firm will…

A: After tax cost of debt = Pretax cost of debt * (1 - tax rate) Weighted average cost of capital =…

Q: AMS Company has unexpectedly generated a one-time extra $5 million in cash flow this year. After…

A: Decision making is a process of choosing between the alternatives and selecting the best…

Q: Icarus Airlines is proposing to go public, and you have been given the task of estimating the value…

A: In the given question: Debt capital structure weight = 38 % Equity capital structure weight = 62 %…

Q: Majan Mining has found that its cost of common equity capital is 15 percent and its cost of debt…

A: Given that,  cost of common equity capital is 15 percent cost of debt capital is 12 percent common…

Q: Yongman Electronics has decided to invest $10,000,000 in a new headquarters and needs to determine…

A: Calculation of degree of financial leverage:

Q: If its current tax rate is 40%, Turnbull’s weighted average cost of capital (WACC) will be  (1.23 /…

A:

Q: A company has annual after-tax operating cash flows of P2,000,000 per year which are expected to…

A: After-tax operating cash flows = P 2,000,000 After tax WACC = 8%

Q: Consider the following case of Happy Turtle Transportation Company: Suppose Happy Turtle…

A: Step 1: Calculate the net income as follows: Step 2: Calculate the return on equity as follows:…

Q: LANY Corporation is deciding whether to pursue a restricted or relaxed working capital investment…

A: The Fixed Assets Turnover Ratio is Activity Ratio. It is calculated with the help of following…

Q: You are asked to evaluate the following project for a corporation with profitable ongoing…

A: Net present value is the value of cash inflows earned from a project after deducting the value of…

Q: National Co. has the opportunity to increase its annual sales by P125,000 by selling to a new,…

A: Manufacturing and selling expense = 125,000 x 70% = 87,500 Uncollectible expense = 125,000 x 10% =…

Q: Shelton Tax Services is considering investing in new software for their corporate tax business. The…

A: Net present value is a method for determining whether to invest in a capital asset. It is used…

Q: Olsen Outfitters Inc. believes that its optimal capital structure consists of 55% common equity and…

A: WACC is weighted average cost of capital which is calculated to determine the the cost which is to…

Q: Shiloh Ltd is buying a piece of equipment for GH¢100,000. The company intends to finance the…

A: Under the capital budgeting techniques, the long term investment which is proposed to the management…

Q: The average profit after tax for ABC company is 120,000$; it has initiated an investment of…

A: Average Rate Return(ARR) shows average profit earned on investment on annual basis. ARR is expressed…

Q: Wizard Co. is considering a project that will require $500,000 in assets. The project will be…

A: The return on equity is the return that is consider for two stages. Either it is distributed to the…

Q: As part of their investment strategy, the Carringtons have decided to put $100,000 into stock market…

A: a) Computation:

Q: Bulldogs Inc. is considering whether to pursue a restricted or relaxed current asset investment…

A: Return on equity is the net income earned by the amount invested in the net assets of the company.…

Q: . Ryan Alcoa, a new associate at Jonas Partners, has compiled the following data for a potential…

A: Calculate the Profit after tax: Sales revenue $180,000 Costs ($80,000) Profit before tax…

Q: Turnbull Co. is considering a project that requires an initial investment of $1,708,000. The firm…

A: The Weighted average cost of capital(WACC) refers to the financial ratio that calculates the overall…

Q: IP Co, a telecommunications company, is considering an investment of $150 million into a wind farm.…

A: Given information :

Q: GBATT has a capital need of $100 million to fund its operations.  GBATT has an equity investor that…

A: Cost of capital refers to the amount of capital fund maintained as a portfolio of equity and debt.…

Q: You are considering adding a new product to one of your firm’s existing product lines which will…

A: Free cash flow to the firm is net cash inflow for the year. Free cashflow of unlevered firm means…

Q: 18

A: Initial cash outlay is the cost that was involved in the initial year during project investment.

Q: LANY Corporation is deciding whether to pursue a restricted or relaxed working capital investment…

A: The Fixed Assets Turnover Ratio is Activity Ratio. It is calculated with the help of following…

Q: Lux Co. is considering whether to pursue a restricted or relaxed current asset investment policy.…

A: Return on Equity measures the profitability of  equity funds invested in the firm. This ratio…

Q: Michael's is analyzing a project with an initial cost of $45,000 and cash inflows of $30,000 a year…

A: Initial Cost  =$ 45,000 Cash inflows = $30,000 each year Pre Tax Cost of debt = 8% Cost of equity =…

Q: Universal Exports Inc. is a small company and is considering a project that will require $650,000 in…

A: Earnings before interest and taxes: Earnings before interest, depreciation and taxes are the…

Q: Bulldogs Inc. is considering whether to pursue a restricted or relaxed current asset investment…

A: EBIT = P 40000 Interest rate = 10% Fixed assets = P 200000 Sales = P 500000

Q: As part of their investment strategy, the Carringtons have decided to put $100,000 into stock market…

A: Optimal Investment Strategy is allocation of investment in different asset to get maximize return…

Risk Management Techniques

Risk management is the procedure of recognizing, analyzing, monitoring, and preventing the risks and threatening factors of investments and business. Risks can arise from various factors including internal controls, market changes, natural disasters, and failure in productions. Risk management techniques enable entities to control and minimize the risks as well as the threatening factors of the business and it also helps to improve the business.