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Consider a two-year project requiring an investment of - $1,000 at t = 0 and producing earnings before interest, taxes, depreciation, and amortization (EBITDA) of $700 and $800 in years t = 1 and t = 2, respectively. The investment at t = 0, which will be straight-line depreciated down to zero, will be financed with a combination of a loan (L) and equity. The cost of the loan is 10% p.a. and its principal payments in years t = 1 and t = 2 will be L/2. Of course, you would also have to make annual interest payments on the loan's balance outstanding. The tax rate is 30%. Calculate each year's free cash flows (FCF) corresponding to L = $0 and L = $500. Then, find the NPV for each of these two loan scenarios by using a discount rate of r_E = 6%, 7%, and 8% p.a. (IMPORTANT NOTE: you may do this exercise in Excel, but you must give me a printed version of each of the 6 tables that you used to calculate the NPVs. Also remember that for years 1 and 2 we have EBITDA - Depr - Interest = Earnings before taxes. Then EBT Taxes = Net Income. Then NI + Depr = Operational cash flow. Then OCF - Principal = Free cash flow, or FCF. This should help you construct the required table.
When property is disposed of, what factors influence the amount of the deductible loss? Define. What is the importance, if any, of passive activity? Compare and contrast the computational rules for deducting casualty losses on personal-use property w..
Snider Industries sells on terms of 3/10, net 30. Total sales for the year are $1,516,000. Thirty percent of the customers pay on the 10th day and take discounts; the other 70% pay, on average, 48 days after their purchases. Assume 365 days in year f..
Assume the SEC approved the registration statement for a new securities issue this morning. Which one of the following statements must be true about this issue? Select one: a. The red herrings can now be distributed as the distribution was awaiting t..
Build an office high rise with 450,000 square feet of office space. The street level will be dedicated to retail. Lease the land to the developer in exchange for the use of 12,000 square feet of office space. Calculate the Weighted Cost of Capita. Ca..
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.58 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,040,000 in annual sale..
A truck costs $35,000 with a residual value of $2,000. Its service life is five years. Using the declining-balance method at twice the straight-line rate, the book value at the end of year 2 is...
For a European call option on a currency, the exchange rate is $2.0000, the strike price is $1.900, the time to maturity is one year, the domestic (U.S. Dollar) risk-free rate is 5% per annum, and the foreign risk-free rate is 3% per annum. How low c..
What is the accumulated sum of the following stream of payments? $27,416 every year at the beginning of the year for 5 years, at 4.46%, compounded annually.
Ogden Mear did an excellent job saving for retirement. He was able to save $1,000,000 in an account that pays 5 percent per year. His plan was to eventually withdraw all his money by paying himself in equal installments every six months for the next ..
A company is evaluating two competing investments. Investment X has a cost of $100,000 and a NPV estimated at $35,000. Investment Y has a cost of $220,000 and a NPV estimated at $35,500. Taking everything into account, you would recommend the company..
Find the present value of $350 due in the future under each of the following conditions-10% nominal rate, quarterly compounding, discounted back 5 years
1. financial ratio analysis is used by managers equity investors long-term creditors and short-term creditors. what is
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