Question
In: Finance
Question 1: You are currently evaluating a new project for your company. The project requires an...
Question 1:
You are currently evaluating a new project for your company. The project requires an initial investment in equipment RM 90,000 and an investment in working capital of RM10,000 at the beginning (t=0). The project is expected to produce sales revenues of RM120, 000 for three years. Manufacturing costs are estimated to be 60% of the revenues. The asset is depreciated over the project’s life using straight-line depreciation method. At the end of the project (t=3), you can sell the equipment for RM10, 000. The corporate tax rate is 30% and the cost of capital is 15%. Should you accept the project? Why?
Question 2:
The market value of Chakrawala Corporation’s common stock is RM20 million and the market value of its risk-free debt is RM5 million. The beta of the company’s common stock is 1.25 and the market risk premium is 8%. If the Treasury bill rate is 5%, what is the company’s cost of capital? (Assume no tax).
Solutions
jeff jeffy answered 9 months agoRelated Solutions
You are evaluating a small project for your company. The idea is to introduce a new,...
You are evaluating a small project for your company. The idea
is to introduce a new, but short lived, new product. Sales over the
6 year useful life of the project will be 100,000 units, 120,000
units, 110,000 units, 100,000 units, 70,000 units and 70,000 in
each of the 6 years. The price will fluctuate each year, with the
pattern being $16, $18, $17, $14, $14 and $14. The cash operating
expenses will be, on a per unit basis, $7,...
1. Your company is evaluating a new project that will require the purchase of an asset...
1. Your company is evaluating a new project that will require
the purchase of an asset for $22,000 installed. The asset will be
depreciated S/L for 5 years to a zero salvage. Your company is
expecting the asset to have a market value of $5,500 at the end of
4 years. The applicable tax rate is 30% and the cost of capital is
12%
a) Calculate the after tax asset value for the asset at the end
of 4 years....
You are evaluating a project for your company. The initial outlay for the project is $5,000,000,...
You are evaluating a project for your company. The initial
outlay for the project is $5,000,000, and free cash flows for the
project are $1,000,000, $3,000,000, $3,000,000, $4,000,000 and
$4,000,000. For risk analysis, you utilize the Payback and
Discounted Payback methods to trigger increased risk scrutiny. Your
standard is, any project that goes longer than 3 years under either
metric will go through these increased risk tests.
If your required rate is 12%, does this project qualify for
increased scrutiny?...
You are evaluating a project for your company. The project will require equipment that has a...
You are evaluating a project for your company. The project will
require equipment that has a purchase price of $500,000, and will
need to include $60,000 for delivery costs and $70,000 for
installation related expenses. The equipment will be depreciated
using MACRS as a 10 year class asset. Assume you expect a salvage
value of $50,000 at the end of the projects life. In addition, land
will need to be purchased for $1,500,000. The land is expected to
increase in...
You are evaluating a project for your company. The project will require equipment that has a...
You are evaluating a project for your company. The project will
require equipment that has a purchase price of $500,000, and will
need to include $60,000 for delivery costs and $70,000 for
installation related expenses. The equipment will be depreciated
using MACRS as a 10 year class asset. Assume you expect a salvage
value of $50,000 at the end of the projects life. In addition, land
will need to be purchased for $1,500,000. The land is expected to
increase in...
Q1: Your company is evaluating a new project that will require the purchase of an asset...
Q1: Your company is evaluating a new project that will require
the purchase of an asset for $22,000
installed. The asset will be depreciated S/L for 5 years to a
zero salvage.
Your company is expecting the asset to have a market value of
$5,500 at the end of 4 years.
The applicable tax rate is 30% and the cost of capital is
12%
a) Calculate the after tax asset value for the asset at the end
of 4 years....
Using Excell Your company is evaluating a new project that will require the purchase of an...
Using Excell
Your company is evaluating a new project that will require the
purchase of an asset for $25,000 installed. The asset will be
depreciated S/L for 5 years to zero salvage. Your company is
expecting the asset to have a market value of $4,000 at the end of
5 years. The applicable tax rate is 30% and the cost of capital is
12%
a) Calculate the after tax asset value for the asset at the end
of 5 years....
11. You are evaluating a proposed project for your company. The project is expected to generate...
11. You are evaluating a proposed project for your company. The
project is expected to generate the following end-of-year cash
flows:
You have been told you should evaluate this project with an
interest rate of 8.00%.
A) What is the NPV?
B) what is the Internal Rate of Return (IRR)
C) Based on the information above: Your group leader has now
told you that the risk of the project was understated before. As a
result, she tells you to recalculate...
11. You are evaluating a proposed project for your company. The project is expected to generate...
11. You are evaluating a proposed project for your company. The
project is expected to generate the following end-of-year cash
flows:
Please solve for below cash flows: 0------- -$3000 1---------
$300 2----------$300 3---------- $600 4---------- $600 5-----------
$800 6----------- $800 7------------$800 8----------- $700
You have been told you should evaluate this project with an
interest rate of 8.00%.
A) What is the NPV?
B) what is the Internal Rate of Return (IRR)
C) Based on the information above: Your group...
Aruma Ltd. evaluating an investment project which requires the importation of a new machine at a...
Aruma Ltd. evaluating an investment project which requires the
importation of a new machine at a cost of Shs. 2,700,000. The
machine has a useful life of six years.
Additional information:
The following additional costs would be incurred in relation to
the 1. machine:
Shs.
Freight
225,000
Installation and Pre-production
375,000
Import Duty
900.000
The machine is expected to increase the company’s annual cash
flows (before tax) as shown below:
Year
1
2
3
4
4
6
Increase in Cash...
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