Capital structure, Corporate Finance

a)  Use excel of a financial calculator to estimate the IRR of the following business opportunity:  Initial cost of $100,000, expected pre-tax annual cash flows of $54,000 for the next 7 years, and a 20% small business tax rate.  There are no assets to depreciate but there is a yearly $25,000 pre-tax opportunity cost which recognizes the time you spend operating the business.

b)  For this type of risky investment, you would normally require at least a 16% rate of return to compensate for the business risk alone.  Assuming however that you can access a line of credit with a fixed rate of 6%, what is the minimum amount of debt capital ($$) that you would have borrow before the project becomes profitable to finance?

c)  What is the most important difference between the NPV and IRR methodologies?  Discuss briefly whether or not you feel that distinction would be important to this particular case.

 

 

Posted Date: 2/23/2013 3:13:44 AM | Location : United States







Related Discussions:- Capital structure, Assignment Help, Ask Question on Capital structure, Get Answer, Expert's Help, Capital structure Discussions

Write discussion on Capital structure
Your posts are moderated
Related Questions
ABAN LOYD CHILES OFFSHORE LTD. Normal 0 false false false EN-US X-NONE X-NONE MicrosoftInternetExplorer4

Question 1: (i) How do economists go about studying the economics of the public sector? Describe the four stages of analysis (ii) The level of government intervention dif

differentiate between allocative efficiency and pricing efficiency

Kodak Corporation has debt/assets ratio of .3, its cost of debt is 9% and that of equity 13%. The tax rate of Kodak is 30%. The company is not growing, has a dividend payout ratio

Ask qCan the goal of maximizing the value of the stock conflict with other goals such as avoiding unethical or illegal behavior? In particular, do subjects like customer and employ

I purchased an answers document from your site 5 hours ago and it isn''t still delivered. It said that it would take up to 2 hours but it isn''t still delivered. When will it be de

National Australia Bank is listed on the Australian Securities Exchange with code NAB. The company has 2.2731 billion shares outstanding and the closing price on 7 Sept 2012 was $2

Define depreciation expense as it appears on the income statement.How does depreciation affect cash flow? Accounting depreciation is the provision of an asset's initial cost ov

#Minimum 100 words accepted#

Question: i) Show the Modigliani-Miller irrelevancy theorem for corporate capital structure. What assumptions underline the theorem? ii) What the implications with the exis