UPENN: LOOSE LEAF CORP.FIN W/CONNECT
UPENN: LOOSE LEAF CORP.FIN W/CONNECT
17th Edition
ISBN: 9781260361278
Author: Ross
Publisher: McGraw-Hill Publishing Co.
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Chapter 18, Problem 18QP
Summary Introduction

To determine: The NPV of the Project.

Introduction:

A flow to equity (FTE) measure of profit that will be designated to investors by another organization other than the issuing organization, similar to a LLC. An Adjusted Present Value (APV) is the net present value or investment adjusted to interest and tax advantage of the debt that is offered and the equity which is considered as the basis for financing.

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Blue Cod, Inc., a private firm in the holiday gift industry, is considering a new project. The company currently has a target debt-equity ratio of .35, but the industry target debt-equity ratio is .30. The industry average beta is 1.50. The market risk premium is 8 percent, and the risk-free rate is 6 percent. Assume all companies in this industry can issue debt at the risk-free rate. The corporate tax rate is 40 percent. The project requires an initial outlay of $690,000 and is expected to result in an after-tax EBIT of $110,000 at the end of the first year. The project will be financed at the company's target debt-equity ratio. Annual cash flows from the project will grow at a constant rate of 7 percent until the end of the fifth year and remain constant forever thereafter. What is the NPV of this project? (Keep at least 3 decimal places in intermediate steps. Choose an answer that is closest to yours) $263,770.1 $211,264.8 $291,028.5 $237,186.1
Blue Angel, Inc., a private firm in the holiday gift industry, is considering a new project. The company currently has a target debt-equity ratio of .45, but the industry target debt- equity ratio is .50. The industry average beta is 1.10. The market risk premium is 6.9 percent and the risk-free rate is 4.5 percent. Assume all companies in this industry can issue debt at the risk-free rate. The corporate tax rate is 23 percent. The project requires an initial outlay of $825,000 and is expected to result in a $101,000 cash inflow at the end of the first year. The project will be financed at the company's target debt-equity ratio. Annual cash flows from the project will grow at a constant rate of 5 percent until the end of the fifth year and remain constant forever thereafter. Calculate the NPV of the project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV
Hw.16.   Blue Angel, Inc., a private firm in the holiday gift industry, is considering a new project. The company currently has a target debt–equity ratio of .45, but the industry target debt–equity ratio is .40. The industry average beta is 1.30. The market risk premium is 8 percent, and the risk-free rate is 6 percent. Assume all companies in this industry can issue debt at the risk-free rate. The corporate tax rate is 35 percent. The project requires an initial outlay of $676,000 and is expected to result in a $96,000 cash inflow at the end of the first year. The project will be financed at the company’s target debt–equity ratio. Annual cash flows from the project will grow at a constant rate of 6 percent until the end of the fifth year and remain constant forever thereafter.   Calculate the NPV of the project.
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