Question
In: Finance
Watson, Inc., is an all-equity firm. The cost of the company’s equity is currently 13 percent,...
Watson, Inc., is an all-equity firm. The cost of the company’s equity is currently 13 percent, and the risk-free rate is 4.3 percent. The company is currently considering a project that will cost $11.64 million and last six years. The company uses straight-line depreciation. The project will generate revenues minus expenses each year in the amount of $3.28 million. If the company has a tax rate of 35 percent, what is the net present value of the project?
Solutions
Expert Solution
NPV of project is calculated in excel and screen shot provided below:
NPV of project is -$402,887.54% and IRR is 11.75%.
Since,NPV of project is a negative value and IRR value is less than cost of equity of company, so project cannot be accepted.
jeff jeffy answered 2 years agoRelated Solutions
Watson, Inc., is an all-equity firm. The cost of the company’s equity is currently 13 percent,...
Watson, Inc., is an all-equity firm. The cost of the company’s
equity is currently 13 percent, and the risk-free rate is 4.1
percent. The company is currently considering a project that will
cost $11.58 million and last six years. The company uses
straight-line depreciation. The project will generate revenues
minus expenses each year in the amount of $3.26 million.
If the company has a tax rate of 40 percent, what is the net
present value of the project? (Enter...
Watson, Inc., is an all-equity firm. The cost of the company’s equity is currently 12 percent,...
Watson, Inc., is an all-equity firm. The cost of the company’s
equity is currently 12 percent, and the risk-free rate is 4.8
percent. The company is currently considering a project that will
cost $11.79 million and last six years. The company uses
straight-line depreciation. The project will generate revenues
minus expenses each year in the amount of $3.33 million.
If the company has a tax rate of 35 percent, what is the net
present value of the project? (Enter...
Watson, Inc., is an all-equity firm. The cost of the company’s equity is currently 12 percent,...
Watson, Inc., is an all-equity firm. The cost of the company’s
equity is currently 12 percent, and the risk-free rate is 4.8
percent. The company is currently considering a project that will
cost $11.79 million and last six years. The company uses
straight-line depreciation. The project will generate revenues
minus expenses each year in the amount of $3.33 million.
If the company has a tax rate of 35 percent, what is the net
present value of the project? (Enter...
Walker, Inc., is an all-equity firm. The cost of the company’s equity is currently 11.3 percent...
Walker, Inc., is an all-equity firm. The cost of the company’s
equity is currently 11.3 percent and the risk-free rate is 4.2
percent. The company is currently considering a project that will
cost $11.88 million and last six years. The company uses
straight-line depreciation. The project will generate revenues
minus expenses each year in the amount of $3.51 million. If the
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Walker, Inc., is an all-equity firm. The cost of the company’s equity is currently 11.6 percent...
Walker, Inc., is an
all-equity firm. The cost of the company’s equity is currently 11.6
percent and the risk-free rate is 4.5 percent. The company is
currently considering a project that will cost $11.97 million and
last six years. The company uses straight-line depreciation. The
project will generate revenues minus expenses each year in the
amount of $3.57 million.
If the company has a
tax rate of 24 percent, what is the net present value of the
project?
THE ANSWER IS NOT -3,790,792.61 Watson, Inc., is an all-equity firm. The cost of the company’s...
THE ANSWER IS NOT -3,790,792.61
Watson, Inc., is an all-equity firm. The cost of the company’s
equity is currently 13 percent, and the risk-free rate is 4.1
percent. The company is currently considering a project that will
cost $11.58 million and last six years. The company uses
straight-line depreciation. The project will generate revenues
minus expenses each year in the amount of $3.26 million.
If the company has a tax rate of 40 percent, what is the net
present...
Windsor, Inc. is currently an all-equity financed firm, and its cost of equity is 12%. It...
Windsor, Inc. is currently an all-equity financed firm, and its
cost of equity is 12%. It has 20,000 shares outstanding that sell
for $25 each. The firm contemplates a restructuring that would
borrow $100,000 in perpetual debt at an interest rate of 8% which
will be used to repurchase stock. Assume that the corporate tax
rate is 35%.
(1) Calculate the present value of the interest tax shields and
the value of the firm after the proposed restructuring.
(2) What...
A firm has a cost of equity of 13 percent, a cost of preferred of 5...
A firm has a cost of equity of 13 percent, a cost of
preferred of 5 percent, an after-tax cost of debt of 3.4 percent
and a tax rate of 21%. Given this, which of the following will
increase the firm’s weighted average cost of capital?
Increase the firm’s tax rate
Issuing new bonds at par
Increasing the firm’s beta
Increasing the debt/equity ratio
Question #3. Windsor, Inc. is currently an all-equity financed firm, and its cost of equity is...
Question #3.
Windsor, Inc. is currently an all-equity financed firm, and its
cost of equity is 12%. It has 20,000 shares outstanding that sell
for $25 each. The firm contemplates a restructuring that would
borrow $100,000 in perpetual debt at an interest rate of 8% which
will be used to repurchase stock. Assume that the corporate tax
rate is 35%.
(1) Calculate the present value of the interest tax shields and
the value of the firm after the proposed restructuring....
Windsor, Inc. is currently an all-equity financed firm, and its cost of equity is 12%. It has...
Windsor, Inc. is currently an all-equity financed firm, and its
cost of equity is 12%. It has 20,000 shares outstanding
that sell for $25 each. The firm contemplates a restructuring that
would borrow $100,000 in perpetual debt at an interest rate of 8%
which will be used to repurchase stock. Assume that the corporate
tax rate is 35%.
(1) Calculate the present value of the interest tax shields and
the value of the firm after the proposed restructuring.
(2) What will...
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