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In: Finance
Q33: Knotts, Inc., an all-equity firm, is considering an investment of $1.82 million that will be...
Q33:
Knotts, Inc., an all-equity firm, is considering an investment of $1.82 million that will be depreciated according to the straight-line method over its four-year life. The project is expected to generate earnings before taxes and depreciation of $610,000 per year for four years. The investment will not change the risk level of the firm. The company can obtain a four-year, 9 percent loan to finance the project from a local bank. All principal will be repaid in one balloon payment at the end of the fourth year. The bank will charge the firm $60,000 in flotation fees, which will be amortized over the four-year life of the loan. If the company financed the project entirely with equity, the firm’s cost of capital would be 12 percent. The corporate tax rate is 24 percent. Using the adjusted present value method, calculate the APV of the project.
Solutions
jeff jeffy answered 2 months agoRelated Solutions
Knotts, Inc., an all-equity firm, is considering an investment of $1.82 million that will be depreciated...
Knotts, Inc., an all-equity firm, is considering an investment
of $1.82 million that will be depreciated according to the
straight-line method over its four-year life. The project is
expected to generate earnings before taxes and depreciation of
$608,000 per year for four years. The investment will not change
the risk level of the firm. The company can obtain a four-year, 8.8
percent loan to finance the project from a local bank. All
principal will be repaid in one balloon payment...
Knotts, Inc., an all-equity firm, is considering an investment of $1.82 million that will be depreciated...
Knotts, Inc., an all-equity firm, is considering an investment
of $1.82 million that will be depreciated according to the
straight-line method over its four-year life. The project is
expected to generate earnings before taxes and depreciation of
$608,000 per year for four years. The investment will not change
the risk level of the firm. The company can obtain a four-year, 8.8
percent loan to finance the project from a local bank. All
principal will be repaid in one balloon payment...
Knotts, Inc., an all-equity firm, is considering an investment of $1.76 million that will be depreciated...
Knotts, Inc., an all-equity firm, is considering an investment
of $1.76 million that will be depreciated according to the
straight-line method over its four-year life. The project is
expected to generate earnings before taxes and depreciation of
$602,000 per year for four years. The investment will not change
the risk level of the firm. The company can obtain a four-year, 8.2
percent loan to finance the project from a local bank. All
principal will be repaid in one balloon payment...
Knotts, Inc., an all-equity firm, is considering an investment of $1.73 million that will be depreciated...
Knotts, Inc., an all-equity firm, is considering an investment
of $1.73 million that will be depreciated according to the
straight-line method over its four-year life. The project is
expected to generate earnings before taxes and depreciation of
$609,000 per year for four years. The investment will not change
the risk level of the firm. The company can obtain a four-year, 8.9
percent loan to finance the project from a local bank. All
principal will be repaid in one balloon payment...
Knotts, Inc., an all-equity firm, is considering an investment of $1.71 million that will be depreciated...
Knotts, Inc., an all-equity firm, is considering an investment
of $1.71 million that will be depreciated according to the
straight-line method over its four-year life. The project is
expected to generate earnings before taxes and depreciation of
$604,000 per year for four years. The investment will not change
the risk level of the firm. The company can obtain a four-year, 8.4
percent loan to finance the project from a local bank. All
principal will be repaid in one balloon payment...
Knotts, Inc., an all-equity firm, is considering an investment of $1.73 million that will be depreciated...
Knotts, Inc., an all-equity firm, is considering an investment
of $1.73 million that will be depreciated according to the
straight-line method over its four-year life. The project is
expected to generate earnings before taxes and depreciation of
$599,000 per year for four years. The investment will not change
the risk level of the firm. The company can obtain a four-year, 9.8
percent loan to finance the project from a local bank. All
principal will be repaid in one balloon payment...
Gemini, Inc., an all-equity firm, is considering an investment of $1.64 million that will be depreciated...
Gemini, Inc., an all-equity firm, is considering an investment
of $1.64 million that will be depreciated according to the
straight-line method over its four-year life. The project is
expected to generate earnings before taxes and depreciation of
$604,000 per year for four years. The investment will not change
the risk level of the firm. The company can obtain a four-year, 8.5
percent loan to finance the project from a local bank. All
principal will be repaid in one balloon payment...
Gemini, Inc., an all-equity firm, is considering an investment of $1.75 million that will be depreciated...
Gemini, Inc., an all-equity firm, is considering an investment
of $1.75 million that will be depreciated according to the
straight-line method over its four-year life. The project is
expected to generate earnings before taxes and depreciation of
$609,000 per year for four years. The investment will not change
the risk level of the firm. The company can obtain a four-year, 9
percent loan to finance the project from a local bank. All
principal will be repaid in one balloon payment...
Gemini, Inc., an all-equity firm, is considering an investment of $1.71 million that will be depreciated...
Gemini, Inc., an all-equity firm, is considering an investment
of $1.71 million that will be depreciated according to the
straight-line method over its four-year life. The project is
expected to generate earnings before taxes and depreciation of
$596,000 per year for four years. The investment will not change
the risk level of the firm. The company can obtain a four-year, 9.6
percent loan to finance the project from a local bank. All
principal will be repaid in one balloon payment...
Gemini, Inc., an all-equity firm, is considering a $1.7 million investment that will be depreciated according...
Gemini, Inc., an all-equity firm, is considering a $1.7 million
investment that will be depreciated according to the straight-line
method over its four-year life. The project is expected to generate
earnings before taxes and depreciation of $595,000 per year for
four years. The investment will not change the risk level of the
firm. The company can obtain a four-year, 9.5 percent loan to
finance the project from a local bank. They will receive the total
amount needed for investment ($1.7...
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