User Account

All Pages

Using after tax ror analysis-good investment

Assignment Help Financial Management
Reference no: EM131354045

Your real-estate company is considering buying a $5 million dollar hotel. The hotel is expected to earn $20 million dollars (in today’s dollars) every year and have expenses of $17 million dollars (in today’s dollars) which should decrease 5% per year. The company will borrow the money at 10% interest rate compounded monthly for 30 years. Both the interests and the depreciation (according to MACRS) need to be accounted for when computing the taxable income. Inflation is expected to be 3% and the company’s MARR is 18%. Using an after tax ROR analysis, is this a good investment for the company? Use Excel to solve this problem. (Note: today’s dollars is another way of saying constant dollars with today as a base year.) Tax rate is 34% of the taxable income.

Reference no: EM131354045

Questions Cloud

According to the material net working capital constitutes : According to the material net working capital constitutes: =Cash + Account Receivables + Inventory + Market Securities - Account payable - Short term loans But it is the same equation we use for domestic companies. What distinguishes international ca..
Calculate goodman bees net working capital : You are evaluating the balance sheet for Goodman's Bees Corporation. From the balance sheet you find the following balances: cash and marketable securities = $800,000, accounts receivable = $1,600,000, inventory = $2,100,000, accrued wages and taxes ..
Two separate division-discount rate equal to the firm wacc : Swizer Industries has two separate divisions. Division X has less risk so its projects are assigned a discount rate equal to the firm's WACC minus .75 percent. Division Y has more risk and its projects are assigned a rate equal to the firm's WACC plu..
Specialty retailer with multiple brick-and-mortar stores : Bruceton’s is a specialty retailer with multiple brick-and-mortar stores and a cost of capital of 16.4 percent. Specialty Imports is a wholesaler of specialty items and has a cost of capital of 12.6 percent. The expected annual net cash flow is $229,..
Using after tax ror analysis-good investment : Your real-estate company is considering buying a $5 million dollar hotel. The hotel is expected to earn $20 million dollars (in today’s dollars) every year and have expenses of $17 million dollars (in today’s dollars) which should decrease 5% per yea..
What is the project cost of capital : Lawler's is considering a new project. The company has a debt-equity ratio of .64. The company's cost of equity is 14.9 percent, and the aftertax cost of debt is 5.3 percent. The firm feels that the project is riskier than the company as a whole and ..
Information concerning around town tours : You are given the following information concerning Around Town Tours: Debt:7,500, 6.8 percent coupon bonds outstanding, with 11 years to maturity and a quoted price of 97.9. Preferred stock:9,000 shares of $8 preferred stock selling at $88 per share...
Calculate the wacc for this firm : You are given the following information concerning Around Town Tours: Debt:7,500, 6.8 percent coupon bonds outstanding, with 11 years to maturity and a quoted price of 97.9. These bonds pay interest semiannually. Common stock:284,000 shares of common..
Expect to earn on portfolio : A stock has a beta of 1.10, an expected return of 12.11 percent, and lies on the security market line. A risk-free asset is yielding 3.2 percent. You want to create a portfolio valued at $12,000 consisting of Stock A and the risk-free security such t..

Reviews

Write a Review

Financial Management Questions & Answers

  Redraw the sml based on the new expected inflation premium

Write an equation for the SML given the increase in the expected inflation premium, assuming that all other factors remain constant. Redraw the SML based on the new expected inflation premium.

  Higher percentage of debt compared to equity

Which of the following strategies may be used to alter a firm’s capital structure toward a higher percentage of debt compared to equity?

  What is the value of the option to sell the plant

You own a small manufacturing plant that currently generates revenues of $2 million per year. Next year, based upon a decision on a long-term government contract, your revenues will either increase by 20% or decrease by 25%, with equal probability, a..

  What is the expected payoff to the bondholders

A firm is equally likely to be worth $50 million, $80 million, $120 million, or $150 million. There is one bond outstanding that promises to pay $100 million at an interest rate of 6%. The appropriate cost of capital for the firm's projects is 12%. W..

  What additional information might you seek

You are the controller of ABC manufacturing corp, a publicly traded furniture manufacturing company, based on Long Island. Business has been going well for ABC. Over the last four quarters the EPS have been 50, 54,59, and 60 cents per share. What cou..

  What is the arbitrage profit per dollar

Suppose the Japanese yen exchange rate is ¥78.47 = $1, and the British pound exchange rate is £1 = $1.57. What is the cross-rate in terms of yen per pound? Suppose the cross-rate is ¥125 = £1. What is the arbitrage profit per dollar?

  Explain using the values for total annual return

An analyst predicted last year that the stock of Logistics, Inc., would offer a total return of at least 10% in the coming year. At the beginning of the year, the firm had a stock market value of $10 million. At the end of the year, it had a market v..

  What is the firms net income

Alpha Corporation has a return on equity (ROE) of 18.70 percent, an equity multiplier of 2.50, sales of $2,750,000, and a total assets turnover of 2.75. What is the firm's net income?

  What will be the price per share of the firms stock

HR, Inc., another company in Richmond, Indiana in 2008, is currently entirely equity financed. It has only 250,000 shares of common stock outstanding. The stock is selling at $65 per share. If HR decides to issue equity to fund the purchase of the sh..

  Two projects are equally risky-risky firms existing assets

Midwest Electric Company (MEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd = 9% as long as it finances at its target capital structure, which calls for 35% debt and 65% common equity. These two projects..

  Standard deviation of asset-portfolio standard deviation

The standard deviation of asset x is 10%. The standard deviation of asset Y is 32%. the correlation between the returns of X and Y is 32%. If you have a portfolio invested equally in X and Y, the portfolio standard deviation is? Please show me how to..

  The fixed asset falls into the three-year MACRS class

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..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd