1- Consider a project of the Pearson Company. The timing and size of the incremental after-taxcash flows for an all-equity firm are $-2000, $305, $610, $555, $500 from year 0 to 4 respectively.The unlevered cost of equity is 30%.a. Calculate the NPV? Should this project be accepted?b. The firm finances the project with $20000 debt at 11% with $100 after-tax flotation costs.Principal is repaid at $3000 per year with added interest. Pearson's tax rate is 60%. The netpresent value of the project under leverage? Now, Should this project be accepted?

Since it involves multiple questions, we will answer 1st question for you.

1- Consider a project of the Pearson Company. The timing and size of the incremental after-tax cash flows for an all-equity firm are $-2000, $305, $610, $5, $500 from year 0 to 4 respectively. The unlevered cost of equity is 30%. a. Calculate the NPV? Should this project be accepted?

1- Consider a project of the Pearson Company. The timing and size of the incremental after-tax cash flows for an all-equity firm are $-2000, $305, $610, $5, $500 from year 0 to 4 respectively. The unlevered cost of equity is 30%. a. Calculate the NPV? Should this project be accepted?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

1- Consider a project of the Pearson Company. The timing and size of the incremental after-tax
cash flows for an all-equity firm are $-2000, $305, $610, $555, $500 from year 0 to 4 respectively.
The unlevered cost of equity is 30%.
a. Calculate the NPV? Should this project be accepted?
b. The firm finances the project with $20000 debt at 11% with $100 after-tax flotation costs.
Principal is repaid at $3000 per year with added interest. Pearson's tax rate is 60%. The net
present value of the project under leverage? Now, Should this project be accepted?

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Suppose Alcatel-Lucent has an equity cost of capital of 10%, market capitalization of $10.8 billion, and an enterprise value of $14.4 billion. Suppose Alcatel-Lucent’s debt cost of capital is 6.1% and its marginal tax rate is 35%. The cash flow for the project is as follows, same as was given in the previous question. Year 0 1 2 3 FCF -100 50 100 Calculate FCFE for each year but only answer: What is the Percentage change in FCFE in Year 2 from Year 1? Please give your answer in Percentage up to 2 places of Decimal without giving the % sign.
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A firm has target debt-equity ratio of 0.60. The flotation cost for equity is 5% and the flotation cost for debt is 3%. The firm needs $10,000,000 investment to undertake a project. How much should the firm raise to account for flotation costs and the initial investment need of the project? O $10,395,010 O $10,416,667 $11,000,821 $10,572,912 O $10,443,864
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