Question

In: Finance

Consider a firm with the following Parameters: Physical Lifespan 4 Years Capital Expense, Year 0 $9,000...

Consider a firm with the following Parameters:

Physical Lifespan 4 Years
Capital Expense, Year 0 $9,000
EBITDA/Year $9,000
Overall Firm Cost of Capital 5.6%
Tax Rate 35%
Loan $18,000
Interest Payments $737
Depreciation Project Life 6 Years

What is the total PV of this firm, including the loan?

Solutions

Expert Solution

Compute the annual depreciation, using the equation as shown below:

Annual depreciation = Capital expenses/ Estimated life

                                  = $9,000/ 4 years

                                  = $2,250

Hence, the annual depreciation is $2,250.

Compute the present value of the firm, using MS-excel as shown below:

The result of the above excel table is as follows:

Hence, the total present value of the firm is ($5,463.3994).


Related Solutions

Consider the following debt-free project for a machine: Physical Lifespan 5 years Capital Expense, Year 0...
Consider the following debt-free project for a machine: Physical Lifespan 5 years Capital Expense, Year 0 $13,000 EBITDA / Year $8,000 Cost of Capital 5.3% Tax Rate 22% Depreciation Life 4 years What is the value of this project? Note: Report answer to 4 decimal places, no rounding.
Q1: A firm uses physical capital, which is fixed at 4 units, and labour (L) to...
Q1: A firm uses physical capital, which is fixed at 4 units, and labour (L) to make its product. The price of physical capital is $250 per unit and the price of labour is $100 per unit. a) Complete the following table by filling in the columns for marginal product of labour (MPL), average product of labour (APL), total fixed cost (TFC), total variable cost (TVC), total cost (TC), average fixed cost (AFC), average variable cost (AVC), average total cost...
Q1: A firm uses physical capital, which is fixed at 4 units, and labour (L) to...
Q1: A firm uses physical capital, which is fixed at 4 units, and labour (L) to make its product. The price of physical capital is $250 per unit and the price of labour is $100 per unit. a) Complete the following table by filling in the columns for marginal product of labour (MPL), average product of labour (APL), total fixed cost (TFC), total variable cost (TVC), total cost (TC), average fixed cost (AFC), average variable cost (AVC), average total cost...
Q1: A firm uses physical capital, which is fixed at 4 units, and labour (L) to...
Q1: A firm uses physical capital, which is fixed at 4 units, and labour (L) to make its product. The price of physical capital is $250 per unit and the price of labour is $100 per unit. a) Complete the following table by filling in the columns for marginal product of labour (MPL), average product of labour (APL), total fixed cost (TFC), total variable cost (TVC), total cost (TC), average fixed cost (AFC), average variable cost (AVC), average total cost...
"Machine A costs $27,000 to purchase and is worth $9,000 in 4 years at the end...
"Machine A costs $27,000 to purchase and is worth $9,000 in 4 years at the end of its service life. Machine B costs $20,000 to purchase and is worth $1,000 in 4 years at the end of its service life. Assume that these machines are needed for 4 years (required service period). Each machine can be repurchased at the same price in the future, and assume the annual maintenance cost of each machine is negligible. Use 10% annual interest rate....
Consider the following project: Year 0 1 2 3 4 Project A -20.00 8.00 7.00 6.00...
Consider the following project: Year 0 1 2 3 4 Project A -20.00 8.00 7.00 6.00 7.00 Find the payback for this project. (ROUND TO TWO DECIMAL PLACES)
A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 9 years, and a cost of capital of 11%.
Problem 10-6Discounted PaybackA project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 9 years, and a cost of capital of 11%. What is the project's discounted payback period? Round your answer to two decimal places.years
We have the following two projects: Year Project X     Project Y 0   -29,500....... -45,000 1   9,000...
We have the following two projects: Year Project X     Project Y 0   -29,500....... -45,000 1   9,000 ...............0 2   9,000............... 0 3   9,000 .............. 0 4   9,000 ...............0 5   9,000........... $84,000 a) Show each project on the time-line. b) What is payback period? What are payback period values for projects X & Y? How do you interpret them? Given a threshold of 3 years which project or projects should you choose if they are independent? What if they are mutually exclusive?...
Consider a firm that initially had an optimal level of capital. For each of the following...
Consider a firm that initially had an optimal level of capital. For each of the following events, describe (i) how that event will affect the replacement cost of capital and the market value of capital, (ii) how that will affect the Tobin’s q, and (iii) how that will affect the firm’s investment. 1) (5 points)An improvement in the production technology of the firm. 2) (5 points)A decrease in the number of employees hired. 3) (5 points)Destruction of some of the...
Consider Matrix A = ([5, 0, 4],[1, -1, 0],[1, 1, 0]). Note that [5, 0, 4]...
Consider Matrix A = ([5, 0, 4],[1, -1, 0],[1, 1, 0]). Note that [5, 0, 4] is row 1. [1, -1, 0] is row 2. [1, 1, 0] is row 3. a) Find all Eigenvalues and Eigenvectors.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT