[meteor_slideshow slideshow=”arp1″]
A company is thinking of opening a new office and the key data are shown below. The company owns the building that would be used and it could sell it for 100,000 after taxes, if it decides not to open the new office. the equipment for the project would be depreciated by the straight-line method over the projects three year life, after which it would be worth nothing and thus is would have a zero salvage value. No new working capital would be required, and revenues and other operating costs would be constant over the projects three-year life. What is the project NPV? (Hint: Cash flows are constant in years 1-3).
Wacc 10%
Opportunity cost 100,000
new equipment cost (depreciable basis) 65,000
Straight line deprec rate for equipment 33.333%
sales revenues, each year 123,000
operating cost excl derec each year 25,000
tax rate 35%
A. 10,521
B. 11,075
C. 11,658
D. 12,271
E. 12,888
Show work and explain answer.
A company has always paid out all of its earnings as dividens, hence the firm has no retained earnings, This same situation is expected to presist in the future. The company uses the CAPM to calculate its cost of equity, and its target capital structure consists of common stock, preferred stock, and debt. Which following events would REDUCE its WACC
A. The market risk premium declines.
B. The flotaion cost associated with issuing new commmon stock increses.
C. The company beta increases
D. Expected infaltion increases
E the flotation cost associated with issuing preferred stock increase.
A company has equal amounts of low risk average risk and high risk projects. The firms overall WACC is 12%. The CFO belives that this is the correct WACC for the companys average risk projects, but that a lower rate should be used for lower risk projects and a higher rate for higher risk projects. The CEO disagress on the grounds that even though projects have diffrent risk, the WACC used to evalue each project should be the same because the company obtains capital for all projects from the same sources. If the CEOs position is accpeted, what is likely to happen over time?
A. The company will take on too many high risk projects and reject too many low risk projects
B. The company will take on too many low risk projects and reject too many high risk projects
C. things will genrally even out over time and therefore the firms risk should remain constant over time
D. The company overall WACC should decrease over time because it stock price should be increasing
E. the CEOs reommondation would maximize the firms instinsic value
[meteor_slideshow slideshow=”arp2″]
A-Research-Paper.com is committed to deliver a custom paper/essay which is 100% original and deliver it within the deadline. Place your custom order with us and experience the different; You are guaranteed; value for your money and a premium paper which meets your expectations, 24/7 customer support and communication with your writer. Order Now
Use the order calculator below and get started! Contact our live support team for any assistance or inquiry.
[order_calculator]