Question
In: Finance
Consider a firm whose only asset is a plot of vacant land, and whose only liability...
Consider a firm whose only asset is a plot of vacant land, and whose only liability is debt of $ 14.8 million due in one year. If left vacant, the land will be worth $ 10.3 million in one year. Alternatively, the firm can develop the land at an up-front cost of $ 20.4 million. The developed the land will be worth $ 35 million in one year. Suppose the risk-free interest rate is 9.7 %, cash flows are risk-free, and there are no taxes. a. If the firm chooses not to develop the land, what is the value of the firm's equity today? What is the value of the debt today? b. What is the NPV of developing the land? c. Suppose the firm raises $ 20.4 million from the equity holders to develop the land. If the firm develops the land, what is the value of the firm's equity today? What is the value of the firm's debt today? d. Given your answer to part (c), would equity holders be willing to provide the $ 20.4 million needed to develop the land?
Solutions
jeff jeffy answered 7 months agoRelated Solutions
Consider a firm whose only asset is a plot of vacant land, and whose only liability...
Consider a firm whose only asset is a plot of vacant land, and
whose only liability is debt of $15 million due in one year. If
left vacant, the land will be worth $10 million in one year.
Alternatively, the firm can develop the land at an upfront cost of
$20 million. The developed land will be worth $35 million in one
year. Suppose the risk-free interest rate is 10%, assume all cash
flows are risk-free, and assume there are...
Consider a firm whose only asset is a plot of vacant land, and whose only liability...
Consider a firm whose only asset is a plot of vacant land, and
whose only liability is debt of $15.4 million due in one year. If
left vacant, the land will be worth $10.1 million in one year.
Alternatively, the firm can develop the land at an up-front cost
of $19.8 million. The developed the land will be worth $35.1
million in one year. Suppose the risk-free interest rate is 9.8%,
cash flows are risk-free, and there are no taxes....
Consider a firm whose only asset is a plot of vacant land, and whose only liability...
Consider a firm whose only asset is a plot of vacant land, and
whose only liability is debt of $ 14.6 million due in one year. If
left vacant, the land will be worth $ 9.6 million in one year.
Alternatively, the firm can develop the land at an up-front cost
of $ 20.3 million. The developed the land will be worth $ 34.4
million in one year. Suppose therisk-free interest rate is 9.7 %
cash flows are risk-free, and...
I-Consider a firm whose only asset is a plot of vacant land, and whose only liability...
I-Consider a firm whose only asset is a plot of vacant land,
and whose only liability is debt of $ 14.5 million due in one year.
If left vacant, the land will be worth $ 10.5 million in one
year. Alternatively, the firm can develop the land at an upfront
cost of $ 19.5 million. The developed land will be worth $ 34.1
million in one year. Suppose the risk-free interest rate is 9.7 %
, assume all cash flows...
Mr. Goldman has owned a plot of vacant land as an investment for six years. The...
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six years. The land has a basis of $600,000. Mr. Goldman is now
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the opportunity to engage in a qualified § 1031 like-kind exchange
in which the buyer will give Mr. Goldman a different piece of land
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current year. If Mr. Goldman accepts the...
A lumber company typically only agrees to log a plot of land if they have strong...
A lumber company typically only agrees to log a plot of land if
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confidence.
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An owner of a parcel of vacant land and a prospective buyer enter into a written...
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enter into a written contract. For a nonrefundable fee, the owner
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open--for a mutually-acceptable period of time. If the prospective
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purchase price. If the prospective buyer decides against purchasing
the property, the owner will keep the nonrefundable fee received
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Consider the following situations. In each case, is there an asset or liability within the definitions...
Consider the following situations. In each case, is there an
asset or
liability within the definitions given by the Conceptual
Framework?
Explain your answer. Elaborate your view with reference to
the
HKICPA Conceptual Framework of Financial Reporting (2018).
a PPA Limited has purchased a copyright for $350,000. The
copyright
gives the company exclusive use of radio-frequency
identification
(RFID) technology for the production of a video game which
will
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five
years....
You own a house on a plot of land. The land has a value of $150,000....
You own a house on a plot of land. The land has a value of
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A bank has the following asset and liability portfolios. Assets Liabilities and Capital Firm (in billion...
A bank has the following asset and liability portfolios. Assets
Liabilities and Capital Firm (in billion $) Industry Firm (in
billion $) Industry Required reserves 3 4% Demand deposits 25 15%
Commercial loans NOW accounts 8 10% Floating-rate 30 20% MMDAs 17
20% Fixed-rate 20 11% CDs Total 50 31% Short-term 5 35% Consumer
loans 10 20% From 1 to 5 years 30 10% Mortgages Total 35 45%
Floating-rate 10 7% Long-term bonds 5 3% Fixed-rate 5 3% Capital 10...
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