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Question
Consider a capital expenditure project that has forecasted revenues equal to $32,000 per year; cash expenses are estimated to be $29,000 per year. The cost of the project equipment is $23,000, and the equipment's estimated salvage value at the end of the project is $9,000. The equipment's $23,000 cost will be depreciated on a straight-line basis to $0 over a 10-year estimated economic life. Assume that the project requires an initial $7,000 working capital investment. The company's marginal tax rate is 30%. Calculate the project's net present value using a 12% discount rate.a. about -$10,610
b. about -$12,530
c. about -$ 9,954
d. about +$9,462
Answer
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Related questions
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a. 6.25%
b. 26.25%
c. 31.25%
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Q:
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Q:
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Q:
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Q:
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Q:
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Q:
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d. increase their taxable income
Q:
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d. common stock at par
Q:
In order for a stock to qualify for inclusion on the "legal lists," a firm must
a. register with the Securities Exchange Commission (SEC)
b. have assets in excess of $500,000
c. have 10 continuous profitable quarters
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Q:
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b. that dividends may only be paid out of retained earnings
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Q:
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c. Milton Friedman
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Q:
Explain the pecking order theory.
Q:
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Q:
Sulzar's capital structure consists only of common stock (20 million shares), but the firm is planning a major expansion which will require $100 million of new capital. Sulzar has a choice of obtaining the needed capital through the sale of 5 million shares of common stock at $20 per share or the sale of $100 million of first mortgage bonds that would have a coupon rate of 9%. If Sulzar has a marginal tax rate of 40%, calculate the EBIT-EPS indifference point.
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Q:
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b. the indifference point decreases
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Q:
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Q:
The optimal capital structure is a function of ____.
a. corporate income taxes
b. financial distress costs
c. agency costs
d. All of these are correct.
Q:
Due to both financial distress and agency costs, a firm should have a capital structure that
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b. contains all equity
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Q:
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a. initially rises slowly, then falls beyond some point
b. increases at a steady rate throughout the entire range
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d. initially rises slowly, then increases rapidly beyond some point
Q:
Perfect capital markets imply the following:
a. there are no transactions costs for buying and selling securities
b. relevant information is readily available for individuals and is costless to obtain
c. all investors can borrow and lend at the same rate
d. All of these answers are correct.
Q:
Two prominent finance researchers (Modigliani and Miller) showed that
a. the firm's optimal capital structure consists of approximately equal proportions of debt and equity
b. the value of the firm is independent of its capital structure in perfect capital markets with no income taxes
c. the firm's cost of capital is minimized when its capital structure consists of approximately equal proportions of debt and equity
d. the value of the firm is independent of its capital structure in perfect capital markets with income taxes
Q:
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c. $6,250
d. $25,000
Q:
Borkstran has sales of $7.8 million, a variable cost ratio of 0.6, EBIT of $1.1 million, and a degree of combined leverage of 3.4. What is Borkstran's degree of financial leverage?
a. 1.20
b. 0.73
c. 2.29
d. 0.84
Q:
Kenzel has an EPS of $4.20 and sales are $9 million. If the firm has a degree of operating leverage of 4.0 and a degree of financial leverage of 5.2, forecast EPS if the firm expects a 4% sales decline.
a. $0.71
b. $3.49
c. $4.03
d. $3.33