EBK CORPORATE FINANCE
4th Edition
ISBN: 9780134202778
Author: DeMarzo
Publisher: PEARSON CUSTOM PUB.(CONSIGNMENT)
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Question
Chapter 19, Problem 3P
Summary Introduction
To determine: The projected interest payments and the amount of the projected interest tax shield.
Introduction:
The business plan is a necessary tool for the firm to analyze and take decisions on the current and future events. The firm must concentrate on the investments, capital structure, and operations to improve its potentials and future growth of the business.
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Under the assumption that KMS's market share will increase by 0.22% per year, you determine that the plant will require an expansion in 2015, KMS's current outstanding debt, the interest on
the debt, and the interest tax shield are given in the table below. The expansion will cost $21.8 million. Assuming that the financing of the expansion will be delayed accordingly (end of 2015)
calculate the projected interest payments and the amount of the projected interest tax shields (assuming that KMS still uses a 10-year bond, interest rates remain the same at 7.1%, and KMS's tax
rate is 35%) through 2018.
Current values (5000)
Outstanding debt before expansion
Interest on debt before expansion
Interest Tax Shield before expansion
2013
$4,447
$316
$111
2014
$4,447
$316
$111
2015
$4,447
$316
$111
2016
$4,447
$316
$111
The total projected interest payments beginning in 2015 will be $ (Round to the nearest dollar)
2017
$4,447
$316
$111
2018
$4,447
$316
$111
Under the assumption that KXS's market share will be 0.29% higher in each subsequent year, you determine that the
plant will require an expansion in 2020. The expansion will cost $20.6 million. Assuming that the financing of the
expansion will be delayed accordingly (end of 2020), calculate the projected interest payments and the amount of the
projected interest tax shields through 2023 (assuming that KXS still uses a 10-year bond, interest rates remain the
same at 7.1%, and KXS's tax rate is 35%).
2021
$4,363
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Interest on debt before expansion
Interest tax shield before expansion
2022
$4,363
$310
$109
2018
$4,363
2019
$4,363
SK10
$109
2020
2023
$4,363
$4,363
$310
$310
$310
$310
$109
$109
$109
$109
The total projected interest payments starting in 2021 will be $
(Round to the nearest dollar.)
Ace Investment Company is considering the purchase of the Apartment Arms project. Next year’s NOI and cash flow is expected to be $2,000,000, and based on Ace’s economic forecast, market supply and demand and vacancy levels appear to be in balance. As a result, NOI should increase at 4 percent each year for the foreseeable future. Ace believes that it should earn at leasta 13 percent return on its investment.a. Assuming the above facts, what would the estimated value for the property be now?b. What “going-in” cap rates should be indicated from recently sold properties that are comparable to Apartment Arms?c. Assuming that in part (a) the required return changes to 12 percent, what would the value be now?d. Assume results in part (c). What should the investor now be observing regarding the price of “comparable” sales? What market forces may be accounting for the differences in value between (a) and (c)?
Chapter 19 Solutions
EBK CORPORATE FINANCE
Ch. 19.1 - Prob. 1CCCh. 19.1 - Prob. 2CCCh. 19.2 - Prob. 1CCCh. 19.2 - Prob. 2CCCh. 19.3 - What is a pro forma income statement?Ch. 19.3 - Prob. 2CCCh. 19.4 - Prob. 1CCCh. 19.4 - Prob. 2CCCh. 19.5 - Prob. 1CCCh. 19.5 - Prob. 2CC
Ch. 19.6 - Prob. 1CCCh. 19.6 - Prob. 2CCCh. 19 - Prob. 1PCh. 19 - Prob. 2PCh. 19 - Prob. 3PCh. 19 - Prob. 4PCh. 19 - Under the assumptions that Idekos market share...Ch. 19 - Prob. 6PCh. 19 - Prob. 7PCh. 19 - Prob. 8PCh. 19 - Prob. 11PCh. 19 - Calculate Idekos unlevered cost of capital when...Ch. 19 - Using the information produced in the income...Ch. 19 - How does the assumption on future improvements in...Ch. 19 - Approximately what expected future long-run growth...Ch. 19 - Prob. 16P
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