Question
In: Finance
KNF Company (KNFC) is considering a new project that involves the production of additional product for...
KNF Company (KNFC) is considering a new project that involves the production of additional product for which cash out flows and inflows have already estimated. KNFC has 14 million shares of common stock outstanding, 900,000 shares of 9 percent preferred stock outstanding and 210,000 ten percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $34 per share and has a beta of 2.028125, the preferred stock currently sells for $80 per share, and the bonds have 17 years to maturity and sell for 91 percent of par. The return on market portfolio is 12.5 percent, T-bonds (risk free assets) are yielding 4.5 percent, and KNFC's tax rate is 32 percent. What WACC should KNFC apply to this new project's cash flows if the project has the same risk as KNFC 's typical project?
You must show your work step-by-step and write 4 lines for each problem to explain your approach of finding the solution.
Solutions
jeff jeffy answered 6 months agoRelated Solutions
KNF Company (KNFC) is considering a new project that involves the production of additional product for...
KNF Company (KNFC) is considering a new project that involves
the production of additional product for which cash out flows and
inflows have already estimated. KNFC has 14 million shares of
common stock outstanding, 900,000 shares of 9 percent preferred
stock outstanding and 210,000 ten percent semiannual bonds
outstanding, par value $1,000 each. The common stock currently
sells for $34 per share and has a beta of 2.028125, the preferred
stock currently sells for $80 per share, and the bonds...
Y Company (Y) is considering a new project that involves the production of additional product for...
Y Company (Y) is considering a new project that involves the
production of additional product for which cash out flows and
inflows have already estimated.Y has 14 million shares of common
stock outstanding, 900,000 shares of 9 percent preferred stock
outstanding and 210,000 ten percent semiannual bonds outstanding,
par value $1,000 each. The common stock currently sells for $34 per
share and has a beta of 2.028125, the preferred stock currently
sells for $80 per share, and the bonds have...
A firm is considering a project that involves the production and sale of a new product...
A firm is considering a project that involves the production and
sale of a new product over the next five years. This product's
sales are expected to be 200000 units a year at a selling price of
$80 per unit. The fixed operating expenses ( excluding depreciation
) are expected to increase by $8 million a year and variable
operating expenses to decrease by $2 million a year. In addition,
the product will require additional equipment to be purchased today...
Exercise 5 Magnolia Company is considering the production and sale of a new product with the...
Exercise 5
Magnolia Company is considering the production and sale of a new
product with the following sales and cost data: unit sales price,
$350; unit variable costs, $180; total fixed costs, $399,500; and
projected sales, $910,000. Round your answers to the nearest whole
unit or dollar.
(a) Calculate break-even in units.
(b) Calculate break-even in dollars (use four decimal places when
calculating the contribution margin ratio).
(c) Calculate number of units that would need to be sold to
generate...
Exercise 5 Magnolia Company is considering the production and sale of a new product with the...
Exercise 5
Magnolia Company is considering the production and sale of a new
product with the following sales and cost data: unit sales price,
$350; unit variable costs, $180; total fixed costs, $399,500; and
projected sales, $910,000. Round your answers to the nearest whole
unit or dollar.
(a) Calculate break-even in units.
(b) Calculate break-even in dollars (use four decimal places
when calculating the contribution margin ratio).
(c) Calculate number of units that would need to be sold to
generate...
A company is considering a 5-year project to expand production with the purchase of a new...
A company is considering a 5-year project to expand production
with the purchase of a new automated machine using the latest
technology. The new machine would cost $200,000 FOB St. Louis, with
a shipping cost of $8,000 to the plant location. Installation
expenses of $15,000 would also be required. This new machine would
be classified as 7-year property for MACRS depreciation purposes.
The project engineers anticipate that this equipment could be sold
for salvage for $44,000 at the end of...
A company is considering a 5-year project to open a new product line. A new machine...
A company is considering a 5-year project to open a new product
line. A new machine with an installed cost of $90,000 would be
required to manufacture their new product, which is estimated to
produce sales of $80,000 in new revenues each year. The cost of
goods sold to produce these sales (not including depreciation) is
estimated at 55% of sales, and the tax rate at this firm is 40%. If
straight-line depreciation is used to calculate annual
depreciation, what...
Reid Company is considering the production of a new product. The expected variable cost is $23...
Reid Company is considering the production of a new product. The
expected variable cost is $23 per unit. Annual fixed costs are
expected to be $966,000. The anticipated sales price is $92 each.
Required Determine the break-even point in units and dollars using
each of the following: Use the equation method. Use the
contribution margin per unit approach. Use the contribution margin
ratio approach. (Do not round intermediate calculations. Round
"Contribution margin ratio" to 1 decimal place. (i.e., 0.234 should...
Reid Company is considering the production of a new product. The expected variable cost is $27...
Reid Company is considering the production of a new product. The
expected variable cost is $27 per unit. Annual fixed costs are
expected to be $810,000. The anticipated sales price is $72
each.
Determine the break-even point in units and dollars using each
of the following:
a. Use the equation method.
b. Use the contribution margin per unit approach.
c. Use the contribution margin ratio approach. (Do not
round intermediate calculations. Round "Contribution margin ratio"
to 1 decimal place. (i.e.,...
Your employer is considering a capital project that involves installing a new manufacturing line at a...
Your employer is considering a
capital project that involves installing a new manufacturing line
at a cost of $1,880,000. The line will be installed area of the
factory that was refurbished in 2017. At that time, the
refurbishment cost $950,000. If it is not employed by this project,
that area of the factory will remain unused. The new manufacturing
line, if built, will be depreciated on a straight-line basis over
five years, to a salvage value of $0. If implemented,...
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