Panelli's is analyzing a project with an initial cost of $139,000 and cash inflows of $74,000 in Year 1 and S86.000 in Year 2. This project is an extension of current operations and thus is equally as risky as the current company. The company uses only debt and common stock to finance its operations and maintains a debt-equity ratio of .39. The aftertax cost of debt is 5.1 percent, the cost of equity is 13.2 percent, and the tax rate is 21 percent. What is the projected net present value of this project? O -$2,399 O $938 O-$1,807 O $1,109
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- Cully Company needs to raise $23 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company has a target capital structure of 55 percent common stock, 10 percent preferred stock, and 35 percent debt. Flotation costs for issuing new common stock are 8 percent, for new preferred stock, 6 percent, and for new debt, 4 percent. What is the true initial cost figure Southern should use when evaluating its project? $23,589,744 $24,472,000 $24,572,650 $21,620,000 $25,555,556Walsh Company is considering three independent projects, each of which requires a $4 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are presented here: Project H (high risk): Cost of capital = 16% IRR = 18% Project M (medium risk): Cost of capital = 13% IRR = 12% Project L (low risk): Cost of capital = 7% IRR = 10% Note that the projects' costs of capital vary because the projects have different levels of risk. The company's optimal capital structure calls for 35% debt and 65% common equity, and it expects to have net income of $7,154,000. If Walsh establishes its dividends from the residual dividend model, what will be its payout ratio?Walsh Company is considering three independent projects, each of which requires a $3 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are presented below: Project H (High risk): Cost of capital = 16% IRR = 19% Project M (Medium risk): Cost of capital = 13% IRR = 11% Project L (Low risk): Cost of capital = 8% IRR = 9% Note that the projects' costs of capital vary because the projects have different levels of risk. The company's optimal capital structure calls for 30% debt and 70% common equity, and it expects to have net income of $7,268,000. The data has been collected in the Microsoft Excel Online file below . Open the spreadsheet and perform the required analysis to answer the question below. If Walsh establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places.
- Dyrdek Enterprises has equity with a market value of $11.8 million and the market value of debt is $4.05million. The company is evaluating a new project thathas more risk than the firm. As a result, the companywill apply a risk adjustment factor of 2.1 percent. Thenew project will cost $2.40 million today and provideannual cash flows of $626, 000 for the next 6 years. Thecompany's cost of equity is 11.47 percent and thepretax cost of debt is 4.98 percent. The tax rate is 21percent. What is the project's NPV?Walsh Company is considering three independent projects, each of which requires a $6 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are presented here: Project H (high risk): Cost of capital = 17% IRR = 19% Project M (medium risk): Cost of capital = 15% IRR = 13% Project L (low risk): Cost of capital = 7% IRR = 11% Note that the projects' costs of capital vary because the projects have different levels of risk. The company's optimal capital structure calls for 50% debt and 50% common equity, and it expects to have net income of $7,714,500. If Walsh establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places.Cousins Corporation is considering whether to pursue an aggressive or conservative current asset policy, as well as an aggressive or conservative financing policy. The following information is available: Annual sales are $80,000,000. Fixed assets are $40,000,000. The debt ratio is 40 percent. EBIT is $8,000,000. Tax rate is 25 percent. With an aggressive policy, current assets will be 30 percent of sales; with a conservative policy, current assets will be 70 percent of sales. With an aggressive financing policy, short-term debt will be 40 percent of the total debt; with a conservative financing policy, short-term debt will be 15 percent of the total debt. Interest rate for short-term debt is 10 percent. Interest rate for long-term debt is 14 percent. Required: Determine the return on equity for the aggressive approach and for the conservative approach. Discuss which approach you would choose.
- Bass Corporation is considering whether to pursue an aggressive or conservative current asset policy, as well as an aggressive or conservative financing policy. The following information is available: Annual sales are $50,000,000. Fixed assets are $30,000,000. The debt ratio is 40 percent. EBIT is $3,000,000. Tax rate is 25 percent. With an aggressive policy, current assets will be 20 percent of sales; with a conservative policy, current assets will be 60 percent of sales. With an aggressive financing policy, short-term debt will be 60 percent of the total debt; with a conservative financing policy, short-term debt will be 20 percent of the total debt. Interest rate for short-term debt is 6 percent. Interest rate for long-term debt is 11 percent. Required: Determine the return on equity for the aggressive approach and for the conservative approach. Discuss which approach you would choose.Shinedown Company needs to raise $55 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company has a target capital structure of 70 percent common stock, 15 percent preferred stock, and 15 percent debt. Flotation costs for issuing new common stock are 9 percent, for new preferred stock, 6 percent, and for new debt, 2 percent. What is the true initial cost figure the company should use when evaluating its project?Double Happiness Ltd. is considering a project with an initial start up cost of $960,000. The firm maintains a debt-equity ratio of 0.50 and has a flotation cost of debt of 6.8 percent and a flotation cost of equity of 11.4%. The firm has sufficient internally generated equity to cover the equity cost of this project. What is the initial cost of the project including the flotation costs?
- Travis & Sons has a capital structure that is based on 40 percent debt, 5 percent preferred stock, and 55 percent common stock. The pretax cost of debt is 7.5 percent, the cost of preferred is 9.6 percent, and the cost of common stock is 13 percent. The tax rate is 21 percent. The company is considering a project that is as risky as the overall firm. This project has initial costs of $325,000 and annual cash inflows of $87,000, $279,000, and $116,000 over the next three years, respectively. What is the projected net present value of this project? $71,821.94 $76,011.23 $68,211.04 $74272.98Walsh Company is considering three independent projects,each of which requires a $4 million investment. The estimated internal rate of return (IRR)and cost of capital for these projects are presented here:Project H (high risk): Cost of capital = 16% IRR = 19%Project M (medium risk): Cost of capital = 12% IRR = 13%Project L (low risk): Cost of capital = 9% IRR = 8%Note that the projects’ costs of capital vary because the projects have different levels ofrisk. The company’s optimal capital structure calls for 40% debt and 60% common equity,and it expects to have net income of $7,500,000. If Walsh establishes its dividends from theresidual dividend model, what will be its payout ratio?Orchard Farms has a pretax cost of debt of 7.68 percent and a cost of equity of 15.2 percent. The firm uses the subjective approach to determine project discount rates. Currently, the firm is considering a project to which it has assigned an adjustment factor of -0.5 percent. The firm's tax rate is 34 percent and its debt-equity ratio is 0.45. The project has an initial cost of $4.3 million and produces cash inflows of $1.27 million a year for 5 years. What is the net present value of the project