Question

In: Finance

A manufacture company is evaluating a new project. If the company issues $3,000 equity to finance...

A manufacture company is evaluating a new project. If the company issues $3,000 equity to finance the project, the project will return $3,750 or 25% in one year. Assuming the required rate of return is 16% and the tax rate is zero. Without the project, the company is expected to generate $5,500 cash flow if the economy is in the best case, $4,000 if the economy is in an average case, and $2,000 if the economy is in the worst case. Each economic outcome has an equal possibility to occur. There is a $4,000 debt due in one year. Do you recommend the company to take the project? What is the value of equity if the project is taken?

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE


Related Solutions

You are evaluating an investment project costing $43,000 initially. The project will provide $3,000 in after-tax...
You are evaluating an investment project costing $43,000 initially. The project will provide $3,000 in after-tax cash flows in the first year, $4,000 in the second year and $9,000 each year thereafter for 10 years. The maximum payback period for your company is 7 years. Attempt 1/1 for 10 pts. Part 1 What is the payback period for this project?
A company is evaluating a new 4-year project. The equipment necessary for the project will cost...
A company is evaluating a new 4-year project. The equipment necessary for the project will cost $3,600,000 and can be sold for $725,000 at the end of the project. The asset is in the 5-year MACRS class. The depreciation percentage each year is 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company's tax rate is 40 percent. What is the aftertax salvage value of the equipment?
The sales and finance team of a car company is evaluating a new proposed luxury model...
The sales and finance team of a car company is evaluating a new proposed luxury model of its brand that will require an investment of $1Billion in a new machine for car interior decoration. Demand for the company’s car is expected to begin at 100,000 units in year 1, with 10% annual growth thereafter. Production cost will be $35,000 per unit in the first year, and increase by a rate of either 3% or 5% per year as a result...
The sales and finance team of a car company is evaluating a new proposed luxury model...
The sales and finance team of a car company is evaluating a new proposed luxury model of its brand that will require an investment of $1Billion in a new machine for car interior decoration. Demand for the company’s car is expected to begin at 100,000 units in year 1, with 10% annual growth thereafter. Production cost will be $35,000 per unit in the first year, and increase by a rate of either 3% or 5% per year as a result...
Question 3 The sales and finance team of a car company is evaluating a new proposed...
Question 3 The sales and finance team of a car company is evaluating a new proposed luxury model of its brand that will require an investment of $1Billion in a new machine for car interior decoration. Demand for the company’s car is expected to begin at 100,000 units in year 1, with 10% annual growth thereafter. Production cost will be $35,000 per unit in the first year, and increase by a rate of either 3% or 5% per year as...
The sales and finance team of a car company is evaluating a new proposed luxury model...
The sales and finance team of a car company is evaluating a new proposed luxury model of its brand that will require an investment of $1Billion in a new machine for car interior decoration. Demand for the company’s car is expected to begin at 100,000 units in year 1, with 10% annual growth thereafter. Production cost will be $40,000 per unit in the first year, and increase by a rateof either 3% or 5% per year as a result of...
Threes Company is evaluating a new project. Threes has to invest $500,000 into the project now,...
Threes Company is evaluating a new project. Threes has to invest $500,000 into the project now, and, then, the firm expects to receive (after-taxes) cash inflows from this project as below: Year 1 Year 2 Year 3 Year 4 Year 5 $125,000 $186,000 $225,000 $190,000 $140,000 Threes uses the CAPM in estimating cost of equity capital. Threes Co’s’ estimates on the CAPM variables are as follows: the project’s beta = 1.50; the risk-free rate = 4%; and the return on...
Question 1: You are currently evaluating a new project for your company. The project requires an...
Question 1: You are currently evaluating a new project for your company. The project requires an initial investment in equipment RM 90,000 and an investment in working capital of RM10,000 at the beginning (t=0). The project is expected to produce sales revenues of RM120, 000 for three years. Manufacturing costs are estimated to be 60% of the revenues. The asset is depreciated over the project’s life using straight-line depreciation method. At the end of the project (t=3), you can sell...
Q1: Your company is evaluating a new project that will require the purchase of an asset...
Q1: Your company is evaluating a new project that will require the purchase of an asset for $22,000 installed. The asset will be depreciated S/L for 5 years to a zero salvage. Your company is expecting the asset to have a market value of $5,500 at the end of 4 years. The applicable tax rate is 30% and the cost of capital is 12% a) Calculate the after tax asset value for the asset at the end of 4 years....
Using Excell Your company is evaluating a new project that will require the purchase of an...
Using Excell Your company is evaluating a new project that will require the purchase of an asset for $25,000 installed. The asset will be depreciated S/L for 5 years to zero salvage. Your company is expecting the asset to have a market value of $4,000 at the end of 5 years. The applicable tax rate is 30% and the cost of capital is 12% a) Calculate the after tax asset value for the asset at the end of 5 years....
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT