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).

jeff jeffy answered 1 year ago
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