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In: Finance
Q18). The Rare Find Co. has the following information: Debt outstanding: $280 million Before-tax cost of...
Q18).
The Rare Find Co. has the following information:
Debt outstanding: $280 million
Before-tax cost of debt: 5%
Market cap: $650 million
Cost of common stock: 11%
Tax rate: 21%
Rare Find is evaluating a project with the following information:
Over the next five years EBIT will equal: 12 million, 13 million, 14 million, 15 million, 16 million respectively.
An investment of $5 million is required in net working capital at the beginning of the project, which will be recovered at the end of the project.
The cost of the equipment will be $30 million depreciated using straight-line to zero over the project's life, with no salvage value.
The project requires an additional 1% risk premium above the firms WACC.
Calculate the WACC for the firm. (Enter percentages as decimals and round to 4 decimals)
Calculate the operating cash flows for the first year of the project.
Calculate the net present value for the project. (Round to 2 decimals)
Solutions
jeff jeffy answered 2 years agoRelated Solutions
The Rare Find Co. has the following information: Debt outstanding: $280 million Before-tax cost of debt:...
The Rare Find Co. has the following information: Debt
outstanding: $280 million Before-tax cost of debt: 5% Market cap:
$650 million Cost of common stock: 11% Tax rate: 21% Rare Find is
evaluating a project with the following information: Over the next
five years EBIT will equal: 12 million, 13 million, 14 million, 15
million, 16 million respectively. An investment of $5 million is
required in net working capital at the beginning of the project,
which will be recovered at...
Logic Co. has the following information: Debt outstanding: $280 million Before-tax cost of debt: 5% Market...
Logic Co. has the
following information:
Debt outstanding:
$280 million
Before-tax cost of debt: 5%
Market cap: $650 million
Cost of common stock: 11%
Tax rate: 21%
Logic is evaluating a
project with the following information:
Over the next five
years EBIT will equal: 12 million, 13 million, 14 million, 15
million, 16 million respectively.
An investment of $5 million is required in net working capital at
the beginning of the project, which will be recovered at the end of...
To calculate the after-tax cost of debt, multiply the before-tax cost of debt by . Perpetualcold...
To calculate the after-tax cost of debt, multiply the before-tax
cost of debt by .
Perpetualcold Refrigeration Company (PRC) can borrow funds at an
interest rate of 11.10% for a period of four years. Its marginal
federal-plus-state tax rate is 25%. PRC’s after-tax cost of debt
is (rounded to two decimal places).
At the present time, Perpetualcold Refrigeration Company (PRC)
has 15-year noncallable bonds with a face value of $1,000 that are
outstanding. These bonds have a current market price...
A. The (before-tax cost of debt/after-tax cost of debt) is the interest rate that a firm...
A. The (before-tax cost of debt/after-tax cost of
debt) is the interest rate that a firm pays on any new
debt financing.
B. Perpetualcold Refrigeration Company (PRC) can borrow funds at
an interest rate of 11.10% for a period of four years. Its marginal
federal-plus-state tax rate is 45%. PRC’s after-tax cost of debt is
(6.11%/7.03%/5.80%/6.72%) (rounded to two decimal
places).
C. At the present time, Perpetualcold Refrigeration Company
(PRC) has 10-year noncallable bonds with a face value of $1,000...
ABC Company has a before-tax cost of debt of 5.94%. The cost of equity of an...
ABC Company has a before-tax cost of debt of 5.94%. The cost of
equity of an unlevered firm (Note: cost of equity of unlevered firm
= return on assets = cost of capital of the firm's assets = RA) is
17.14%. The D/E ratio is 1.13. What is the cost of equity? Assume a
tax rate of 27.4%. Enter your answer as a percentage rounded off to
two decimal points. Do not enter % in the answer box.
Calculate the cost of debt for a firm that has $10 million inbonds outstanding that...
Calculate the cost of debt for a firm that has $10 million in
bonds outstanding that mature in 15 years and have 5% coupon rates.
Coupons are paid semiannually. The face value of the bonds is $1000
and the price per bond is $900.
Q6. If a firm’s before-tax cost of debt is 10% and the firm has a 10%...
Q6.
If a firm’s before-tax cost of debt is 10% and the firm has a
10% marginal tax rate, what is the firm’s after-tax cost of
debt?
6.5%
3.5%
9.0%
7.9%
Q7.
A company has preferred stock that can be sold for $100 per
share. The preferred stock pays an annual dividend $6. Therefore,
the cost of preferred stock is:
4.0%
5.0%
6.0%
10.0%
Q8.
Suppose your company has an equity beta of 1.5 and the current
risk-free rate is...
Firm R currently has $1,500,000 of debt outstanding with a before tax annual coupon of 5.2%,...
Firm R currently has $1,500,000 of debt outstanding with a
before tax annual coupon of 5.2%, a constant EBIT of $2,000,000 and
450,000 shares outstanding at a market price of $28.00. The firm is
considering issuing $1,000,000 of debt at a before tax cost of
7.25% and using the proceeds to repurchase stock at the new
post-announcement market price. If this plan is implemented, it is
expected that the required return on equity would rise to 10%. The
firm's marginal...
The Imaginary Products Co. currently has debt with a market value of $300 million outstanding. The...
The Imaginary Products Co. currently has debt with a market
value of $300 million outstanding. The debt consists of 9 percent
coupon bonds (semiannual coupon payments) which have a maturity of
15 years and are currently priced at $915.93 per bond. The firm
also has an issue of 2 million preferred shares outstanding with a
market price of $29. The preferred shares pay an annual dividend of
$1.20. Imaginary also has 14 million shares of common stock
outstanding with a...
The Imaginary Products Co. currently has debt with a market value of $300 million outstanding. The...
The Imaginary Products Co. currently has debt with a market
value of $300 million outstanding.
The debt consists of 10 percent coupon bonds (semiannual coupon
payments) which have a
maturity of 15 years and are currently priced at $1,440.03 per
bond. The firm also has an issue
of 4 million preferred shares outstanding with a market price of
$14.00 per share. The preferred
shares pay an annual dividend of $1.20. Imaginary also has 12
million shares of common stock
outstanding...
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