A project is expected to generate cash flow from assets equal to $250,000 at the end...

A project is expected to generate cash flow from assets equal to $250,000 at the end of the year. The cash flows are expected to grow at 4% for the next 20 years. At the end of the 20 years, the project will no longer be viable, but the company will be able to sell off related equipment at an after tax salvage value of $1,000,000. The cost of capital for this project is 8%.

The company is considering selling off this project. If the debt associated with this project is $2,000,000, what is the equity value of the project?

Solutions

Expert Solution

jeff jeffy answered 2 weeks ago

Next > < Previous

Related Solutions

A project is expected to generate cash flow from assets equal to $250,000 at the end...

AS is evaluating a project that is expected to generate the following cash flow stream: Expected...

AS is evaluating a project that is expected to generate the following cash flow stream: Expected Cash Flow Now -R 100,000 End-of-year 1 R 50,000 End-of-year 2 R 50,000 End-of-year 3 R 50,000 Required: 2.1. If the project’s cost of capital is 12 per cent, what is the present value of the project’s expected cash flow stream? 2.2. What is the net present value of the project?

A new project is expected to generate an operating cash flow of $85,560 and will initially...

A new project is expected to generate an operating cash flow of $85,560 and will initially free up $10,475 in net working capital. Purchases of fixed assets costing $85,000 will be required to start up the project. What is the total cash flow for this project at Time zero? A) −$75,085 B) −$74,525 C) −$85,000 D) −$87,250 E) $62,250

A production project will generate an expected operating cash flow of $50,000 per year for 4...

A production project will generate an expected operating cash flow of $50,000 per year for 4 years (years 1 – 4). Undertaking the project will require an increase in the company’s net working capital (inventory) of $10,000 today (year 0). At the end of the project (year 4), inventory will return to the original level. The project would cost $150,000. The marginal tax rate is 35%. The weighted average cost of capital for the firm is 9%. Sketch a timeline...

A project costs $1000 today and will generate a cash flow of $3173 three years from...

A project costs $1000 today and will generate a cash flow of $3173 three years from now. If the interest rate is 3%, what is the net present value of the project?

Cash Flow From Assets Problem: Calculate each step of the cash flow from assets based on...

Cash Flow From Assets Problem: Calculate each step of the cash flow from assets based on the following information. Use the examples in the presentation as a guide. Working Capital Accounts: 2015: Current Assets = 4,400; Current Liabilities = 1,500 2014: Current Assets = 3,500; Current Liabilities = 1,200 Fixed Assets and Depreciation: 2015: Net Fixed Assets = 3,400 2014: Net Fixed Assets = 3,100 Depreciation Expense = 400 Long-Term Debt and Equity: 2015: Long-Term Debt = 4,000; Common Stock...

Which one of the following will decrease the cash flow from assets, all else equal? Select...

Which one of the following will decrease the cash flow from assets, all else equal? Select one: a. decrease in the change in net working capital b. increase in cash flow to stockholders c. increase in cash flow to creditors d. increase in net capital spending e. increase in operating cash flow

An investment is expected to generate annual cash flows forever. The first annual cash flow is...

An investment is expected to generate annual cash flows forever. The first annual cash flow is expected in 1 year and all subsequent annual cash flows are expected to grow at a constant rate annually. We know that the cash flow expected in 3 years from today is expected to be $9,000 and the cash flow expected in 7 years from today is expected to be $10,000. What is the cash flow expected to be in 5 years from today?

An investment is expected to generate annual cash flows forever. The first annual cash flow is...

An investment is expected to generate annual cash flows forever. The first annual cash flow is expected in 1 year and all subsequent annual cash flows are expected to grow at a constant rate annually. We know that the cash flow expected in 2 year(s) from today is expected to be 1,860 dollars and the cash flow expected in 8 years from today is expected to be 3,140 dollars. What is the cash flow expected to be in 5 years...

For project A, the cash flow effect from the change in net working capital is expected...

For project A, the cash flow effect from the change in net working capital is expected to be 500 dollars at time 2 and the level of net working capital is expected to be 2,600 dollars at time 1. What is the level of current assets for project A expected to be at time 2 if the level of current liabilities for project A is expected to be 1,900 dollars at time 2?

Subjects