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Daniel Kaffe, CFA of Kendrick Enterprises, is evaluating a 10-year, 8 percent loan with gross proceeds of $5,850,000. The interest payments on the loan will be made annually. Flotation costs are estimated to be 2.5 percent of gross proceeds and will be amortized using a straight-line schedule over the 10-year life of the loan. The company has a tax rate of 40 percent, and the loan will no increase the risk of financial distress for the company. a) Calculate the NPV of the loan excluding flotation costs b) Calculate the NPV of the loan including flotation costs
Triad Corporation has established a joint venture with Tobacco Road Construction, Inc., to build a toll road in North Carolina. The initial investment in paving equipment is $80 million. The equipment will be fully depreciated using the straight-line method over its economic life of 5 years. Earnings before interest, taxes and depreciation collected from the toll road are projected to be $12.1 million per year for 20 years starting from the end of the first year. The corporate tax rate is 35 percent, The required rate of return for the project under all-equity financing is 13 percent. The pretax cost of debt for the joint partnership is 8.5%. To encourage investment in the country’s infrastructure, the US government will subsidize the project with $25 million, 15-year loan at an interest rate of 5 percent per year. All principal will be repaid in one balloon payment at the end of Year 15. What is the adjusted present value of the project?
Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt. Vandell's debt interest rate is 7.6%. Indicate the range of possible prices that Has..
Suppose you deposit $20,000 at the end of each of the next 30 years into a retirement account. Immediately after your last deposit, you take the entire accumulated value in your account and purchase a 20-year annuity, which will pay you X at the begi..
The last observed dividend for Company Z before today was $2.15. Dividends are growing at a constant rate of 8.5% annually. If the required rate of return on the stock is 12.5%, what will be the total expected dollar capital gain per share on the sto..
You have been given the expected return data shown in the first table on three assets -F, G, and H- over the period 2016-2019. Expected return. Calculate the expected return over the 4-year period for each of the three alternatives. Calculate the sta..
Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $130,000 if credit is extended to these new customers. Compute the incremental income after taxes. What will Johnson..
Which of the following is not included in computing EBT (earnings before taxes)?
For Starbucks briefly describe the business, scan the environment, and list two risks you’ve identified to implement an ERM. Describe the risks and explain how you’d treat the risks.
The budget director of Gold medal athletic co., with the assitance of the controller, treasurer, production manager and sales manager, has gathered the following data for use in developing the budgeted income statement for march 2016
Briefly discuss the various types of international banking offices. How does the deposit-loan rate spread in the Eurodollar market compare with the deposit-loan rate spread in the domestic U.S. banking system? Why?
Calculate the market value of a firm with the total assets of $105 million and $50 million od 10% perpetual debt in capital structure. The firm's cost of equity is 14% on the 55 million in equity in the capital structure. The perpetual EBIT is expect..
Sasha is bartending at The Right Round, a nearby pub, because her new song isn’t selling very well. She sees Joe-Lo, a regular customer at The Right Round, is clearly intoxicated. He asks her for one more round of drinks before he leaves. Did defenda..
Assume that the consolidated balance sheet for the commercial banking system can be simplified as follows: D+NW=R+L where D=deposits, NW= net worth, R=reserves and L=loans. Assume that the banks maintain a fixed reserves ratio (R/D) of 10% and a capi..
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