Using the adjusted present value method

Assignment Help Financial Management

Reference no: EM131535376

Gemini, Inc., an all-equity firm, is considering an investment of $1.79 million that will be depreciated according to the straight-line method over its four-year life. The project is expected to generate earnings before taxes and depreciation of $613,000 per year for four years. The investment will not change the risk level of the firm. The company can obtain a four-year, 9.4 percent loan to finance the project from a local bank. All principal will be repaid in one balloon payment at the end of the fourth year. The bank will charge the firm $63,000 in flotation fees, which will be amortized over the four-year life of the loan. If the company financed the project entirely with equity, the firm’s cost of capital would be 12 percent. The corporate tax rate is 34 percent.

Using the adjusted present value method, 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.)

APV $

Reference no: EM131535376

Questions Cloud

What is the amount of the annual depreciation expense : Doogie’s Pools and Spas just purchased a new piece of equipment that cost $15,000. What is the amount of the annual depreciation expense?

What are the annual operating cash flows : Frasier Financial has a project that will increase their revenues by $75,000 annually. What are the annual operating cash flows?

What is the annual operating cash flow of the project : Grace Inc is purchasing a new punching machine. What is the annual operating cash flow of the project?

Net present value of the loan including flotation costs : Calculate the net present value of the loan excluding flotation costs. Calculate the net present value of the loan including flotation costs.

Using the adjusted present value method : Using the adjusted present value method, calculate the APV of the project.

Purchasing new delivery truck to replace their existing one : Carson Inc is purchasing a new delivery truck to replace their existing one.

What tax would you have to pay on the sale : You purchased a forklift 6 years ago. It was being depreciated straight line over 10 years to zero salvage value. what tax would you have to pay on sale?

Calculate the ninv of a project naj is considering investing : Calculate the NINV of a project Naj is considering investing in where the generator costs $25,000.

What is the net present value of the project : If the company has a tax rate of 35 percent, what is the net present value of the project?

User Account

All Pages