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Zulu Car Rental Corporation is trying to determine whether to add 25 cars to its fleet. The company fully depreciates all its rental cars over 5 years using the straight line method. The new cars are expected to generate $140,000 per year in earnings before taxes and depreciation for 5 years. The company is entirely financed by equity and has a 35% tax rate. The required return on the company’s unlevered equity is 13% and the new fleet will not change the risk of the company. a.) What is the maximum price that the company should be willing to pay for the new fleet of cars if it remains an all-equity firm? b.) Suppose the company can purchase the fleet of cars for $395,000. Additionally, assume the company can issue $260,000 for 5 year, 8% debt to finance the project. All principal will be repaid in one balloon payment at the end of the 5th year. c.)What is the adjusted present value (APV) of the project? please explain and show all calculations
A firm wishes to maintain an internal growth rate of 9 percent and a dividend payout ratio of 25 percent. The current profit margin is 9 percent, and the firm uses no external financing sources. What must total asset turnover be? Round your answer to..
One feature that all annuity contracts have in common is that the annuitant can never outline the annuity payments. Risky investments always perform better than less risky investments over a five-year period. Generally, investments that have the pote..
Bond Valuation: -How much should you be willing to pay for the bond if the investor's required rate of return is 10 percent?
Project ZZQ requires an initial outlay of $500,000 and has a profitability index of 1.4. The project is expected to generate equal annual cash flows over the next ten years. The required return for this project is 16%. What is project ZZQ's internal ..
What is the present coverage (times interest earned) ratio? How much additional 10 percent debt can the company issue now and maintain its times interest earned ratio at 3.5?
Why does the SBA concentrate on providing management and financial assistance to small businesses?
The company with the common equity accounts shown here has declared a 5-for-one stock split when the market value of its stock is $33 per share. The firm’s 75-cent per share cash dividend on the new (postsplit) shares represents an increase of 20 per..
Consider the following Price and Dividend data relating to two stocks that are held in a portfolio. Below are the stock prices and the dividends of Berger during 2009 to 2014: Date Price ($) Dividend ($) respectively
Jiminy’s Cricket Farm issued a bond with 15 years to maturity and a semiannual coupon rate of 6 percent 2 years ago. The bond currently sells for 95 percent of its par value. The company’s tax rate is 40 percent. What is the after-tax cost of the fir..
Develop a BSC that is aligned to the key goal in the strategic plan, i.e. exceeding revenue of $25 million dollars by 2015. Develop, quantify and justify suitable key performance measurement criteria for Anthony's Orchard in each of these four key..
Teardrop, Inc., wishes to expand its facilities. The company currently has 15 million shares outstanding and no debt. The stock sells for $26 per share, but the book value per share is $34. Net income for Teardrop is currently $4.2 million. Calculate..
Explain how a net present value (NPV) profile is used to compare projects. How does this profile compare to that of internal rate of return (IRR)? How does reinvestment affect both NPV and IRR? Provide support for your assertions.
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