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MVP, Inc., has produced rodeo supplies for over 20 years. The company currently has a debt–equity ratio of 50 percent and is in the 40 percent tax bracket. The required return on the firm’s levered equity is 16 percent. The company is planning to expand its production capacity. The equipment to be purchased is expected to generate the following unlevered cash flows: Year Cash Flow 0 −$18,100,000 1 5,810,000 2 9,610,000 3 8,910,000 The company has arranged a debt issue of $9.63 million to partially finance the expansion. Under the loan, the company would pay interest of 10 percent at the end of each year on the outstanding balance at the beginning of the year. The company would also make year-end principal payments of $3,210,000 per year, completely retiring the issue by the end of the third year. Calculate the APV of the project. (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
The person generally directly responsible for overseeing the tax management, cost accounting, financial accounting, and information system functions is the: A. treasurer. B. director. C. controller. D. chairman of the board. E. chief executive office..
Pardon Me, Inc., recently issued new securities to finance a new TV show. The project cost $13.1 million, and the company paid $635,000 in flotation costs. If the company issued new securities in the same proportion as its target capital structure, w..
Sudsy Inc. recently paid an annual dividend of $1.00 per share. Analysts expect that amount to be paid for three years after which dividends will grow at a constant 5% per year indefinitely. The shares are currently trading at $20, and investors requ..
Casey must determine ifit is economically preferable to use higher octane gasoline in his new car. The higher octane has a cost of higher than that of the lo octane gas. $0.20/gallon year. His car has an initial cost of $22,000 and an assumed salvag..
The real risk free rate of interest is 4%. Inflation is expected to be 2% this year and 4% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? What is the yield on 3-year Treasury s..
Is one approach more suitable than other to guide investment decisions in a highly volatile market?
Driveaway Cars issued a 20-year, 8 percent semiannual bond 3 years ago. The bond currently sells for 98.6 percent of its face value. The company's tax rate is 34 percent. What is the aftertax cost of debt?
Albert's Company has current earnings of $4.20 per share. The company intends to use part of its earnings for investments that will generate a return of 20%. The cost of capital of Albert's is 15%, and its current stock price is $40. What is the perc..
Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $19 million, of which 85% has been depreciated. The used equipment can be sold today for $6.65 million, and its tax rate is 35%. What is the equipment..
The policy was used effectively by President Kennedy in the 1960s and President Reagan in the 1980s." - Explain why an investment tax credit may cause an increase in both aggregate demand and aggregate supply.
Your bank owns adjustable rate mortgages (ARMs) that are priced at three month LIBOR plus 1 percent. There is an annual cap on the allowable rate increase equal to a maximum of 1 percent a year. Thus, if LIBOR rises by 3 percent, the bank can raise t..
Dodge Ball Bearings had sales of 12,000 units at $60 per unit last year. The marketing manager projects a 40 percent increase in unit volume sales this year with a 10 percent price decrease (due to a price reduction by a competitor). Returned merchan..
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