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

Expert Solution

jeff jeffy answered 4 months ago

Next > < Previous

Related 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...

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...

Subjects