National Corp. is an all-equity firm with 22,000 shares of stock outstanding with a market price...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
National Corp. is an all-equity firm with 22,000 shares of stock outstanding with a market price of $27 a share. The current cost of equity is 12 percent, and the tax rate is 21 percent. The firm is considering adding $225,000 of debt with a coupon rate of 6.25 percent to its capital structure. The debt will sell at par. What will be the levered value of the equity? Also, briefly discuss the important concept of leverage to a company. Transportation Corporation is considering replacing one of its machines with a more efficient one. The old machine has a book value of $60,000 and a remaining useful life of 5 years. It can sell the old machine now for $ 265,000. The old machine is being depreciated by 120,000 per year straight line. The new machine has a purchase price of $ 1,175,000, an estimated useful life, five years of MACRS class life, and a salvage value of $145,000. Annual economic savings is $255,000 if the new machine is installed. Taxes are 21%, and WACC is 12. The depreciation Table for MACS is on page 176, Table 3. a. Calculate the NPV and IRR of the project and decide whether to accept or reject the project and why? b. Briefly discuss the importance of cash flow to a company. Flight Corp. is considering a new product whose data are shown below. The equipment to be used would be depreciated by the straight-line method over its 3-year life and would have a zero- salvage value, and no change in net operating working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other Plastic products and would reduce their pre-tax annual cash flows. What is the project's NPV? IRR? Briefly discuss the results and why you would accept or reject the equipment and why. WACC Pre-tax cash flow reduction for other products (cannibalization) Investment cost (depreciable basis) Annual sales revenues Annual operating costs (excl. depreciation) Tax rate 10.0% -$5,000 $80,000 $67,500 -$25,000 21.0% National Corp. is an all-equity firm with 22,000 shares of stock outstanding with a market price of $27 a share. The current cost of equity is 12 percent, and the tax rate is 21 percent. The firm is considering adding $225,000 of debt with a coupon rate of 6.25 percent to its capital structure. The debt will sell at par. What will be the levered value of the equity? Also, briefly discuss the important concept of leverage to a company. Transportation Corporation is considering replacing one of its machines with a more efficient one. The old machine has a book value of $60,000 and a remaining useful life of 5 years. It can sell the old machine now for $ 265,000. The old machine is being depreciated by 120,000 per year straight line. The new machine has a purchase price of $ 1,175,000, an estimated useful life, five years of MACRS class life, and a salvage value of $145,000. Annual economic savings is $255,000 if the new machine is installed. Taxes are 21%, and WACC is 12. The depreciation Table for MACS is on page 176, Table 3. a. Calculate the NPV and IRR of the project and decide whether to accept or reject the project and why? b. Briefly discuss the importance of cash flow to a company. Flight Corp. is considering a new product whose data are shown below. The equipment to be used would be depreciated by the straight-line method over its 3-year life and would have a zero- salvage value, and no change in net operating working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other Plastic products and would reduce their pre-tax annual cash flows. What is the project's NPV? IRR? Briefly discuss the results and why you would accept or reject the equipment and why. WACC Pre-tax cash flow reduction for other products (cannibalization) Investment cost (depreciable basis) Annual sales revenues Annual operating costs (excl. depreciation) Tax rate 10.0% -$5,000 $80,000 $67,500 -$25,000 21.0% National Corp. is an all-equity firm with 22,000 shares of stock outstanding with a market price of $27 a share. The current cost of equity is 12 percent, and the tax rate is 21 percent. The firm is considering adding $225,000 of debt with a coupon rate of 6.25 percent to its capital structure. The debt will sell at par. What will be the levered value of the equity? Also, briefly discuss the important concept of leverage to a company. Transportation Corporation is considering replacing one of its machines with a more efficient one. The old machine has a book value of $60,000 and a remaining useful life of 5 years. It can sell the old machine now for $ 265,000. The old machine is being depreciated by 120,000 per year straight line. The new machine has a purchase price of $ 1,175,000, an estimated useful life, five years of MACRS class life, and a salvage value of $145,000. Annual economic savings is $255,000 if the new machine is installed. Taxes are 21%, and WACC is 12. The depreciation Table for MACS is on page 176, Table 3. a. Calculate the NPV and IRR of the project and decide whether to accept or reject the project and why? b. Briefly discuss the importance of cash flow to a company. Flight Corp. is considering a new product whose data are shown below. The equipment to be used would be depreciated by the straight-line method over its 3-year life and would have a zero- salvage value, and no change in net operating working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other Plastic products and would reduce their pre-tax annual cash flows. What is the project's NPV? IRR? Briefly discuss the results and why you would accept or reject the equipment and why. WACC Pre-tax cash flow reduction for other products (cannibalization) Investment cost (depreciable basis) Annual sales revenues Annual operating costs (excl. depreciation) Tax rate 10.0% -$5,000 $80,000 $67,500 -$25,000 21.0% National Corp. is an all-equity firm with 22,000 shares of stock outstanding with a market price of $27 a share. The current cost of equity is 12 percent, and the tax rate is 21 percent. The firm is considering adding $225,000 of debt with a coupon rate of 6.25 percent to its capital structure. The debt will sell at par. What will be the levered value of the equity? Also, briefly discuss the important concept of leverage to a company. Transportation Corporation is considering replacing one of its machines with a more efficient one. The old machine has a book value of $60,000 and a remaining useful life of 5 years. It can sell the old machine now for $ 265,000. The old machine is being depreciated by 120,000 per year straight line. The new machine has a purchase price of $ 1,175,000, an estimated useful life, five years of MACRS class life, and a salvage value of $145,000. Annual economic savings is $255,000 if the new machine is installed. Taxes are 21%, and WACC is 12. The depreciation Table for MACS is on page 176, Table 3. a. Calculate the NPV and IRR of the project and decide whether to accept or reject the project and why? b. Briefly discuss the importance of cash flow to a company. Flight Corp. is considering a new product whose data are shown below. The equipment to be used would be depreciated by the straight-line method over its 3-year life and would have a zero- salvage value, and no change in net operating working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other Plastic products and would reduce their pre-tax annual cash flows. What is the project's NPV? IRR? Briefly discuss the results and why you would accept or reject the equipment and why. WACC Pre-tax cash flow reduction for other products (cannibalization) Investment cost (depreciable basis) Annual sales revenues Annual operating costs (excl. depreciation) Tax rate 10.0% -$5,000 $80,000 $67,500 -$25,000 21.0%
Expert Answer:
Answer rating: 100% (QA)
SOLUTION To calculate the levered value of equity for National Corp we first need to determine the value of the debt being added to the capital struct... View the full answer
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
Posted Date:
Students also viewed these corporate finance questions
-
You want to be able to withdraw the specified amount periodically from a payout annuity with the given terms. Find how much the account needs to hold to make this possible. Round your answer to the...
-
Last Sale Net Bid Ask Open Int Puts Last Sale Net bid Ask Vol Open Int 16Aug 155.00(1619H155-E) 6.45 0.75 6.95 7.25 9 16Aug 155.00(1619T155-E) 1.18 (0.75) 1.17 1.25 61 4505 16Aug 166.00(1619H160-E)...
-
The hazard rate of a device is h(t) = 1/ Vt. Find the following: %3D a) Probability density function b) Reliability function c) MTTF d) Variance
-
1. Identify the function of the underlined noun/s in each item. 1. On rainy mornings, is your bus usually late? 2. On the desk were the red pencils. 3. Volcanoes and earthquakes are destructive...
-
Interest Revenue from Installment Sale Becker Corporation sells farm machinery on the installment plan. On July 1, 2010, Becker entered into an installment-sale contract with Valente Inc. for a...
-
In problem 1-3, the first derivative f' is given, Find all values of x that make the function f(a) a local minimum and (b) a local maximum. 1. f'(x) = x3(1 - x)2 2. f'(x) = - (x - 1) (x - 2) (x - 3)...
-
Grammer Chicken produces canned chicken a la king. The chicken a la king passes through three departments: (1) Mixing, (2) Retort (sterilization), and (3) Packing. In the Mixing Department, chicken...
-
Given the following information, draw the AON diagram: Activity Immediate Predecessor 1 .......... 2 .......... 3 .........1, 4 4 ...........2 5 ...........2 6 .........3, 5
-
G is an individual GST registrant that files GST returns annually. At the beginning of year 20XX, G incorporated their sole proprietorship into G Inc., a wholly owned subsidiary of G, and registered...
-
In December 1992, Michael Eisner and the late Frank Wells of Walt Disney exercised a large number of stock options. The facts are summarized here. In 1984, Michael Eisner became chairman of Walt...
-
Rental Costs Annual rent $ 8,120 Insurance 220 Security deposit 1,360 20 20 Buying Costs Annual mortgage payments Property taxes Insurance, maintenance Down payment, closing costs Growth in equity...
-
Explain how informations role as a strategic asset affects the structure of global corporations.
-
Two closely related positioning strategies are the country-of-origin positioning strategy and consumer culture positioning strategy. What are these strategies, and how do they differ?
-
Describe the various forms of behavioral segmentation and describe the emergence of the global teens and global elites segments.
-
As the second decade of the twenty-first century came to a close, optimism about global trade talks began to wane. The United States and several Asian countries had spent years working on the details...
-
What were the issues faced by members of ASEAN in recent years? Identify the new member countries of ASEAN + 3 and ASEAN + 6.
-
the stages pls Modeling the Gherkin 30 St Mary Axe, also known as The Gherkin, is a commercial skyscraper in the City of London, London's main financial district. It has a steel frame with circular...
-
Use the information given about the angles and to find the exact value of: (a) sin( + ) (b) cos( + ) (c) sin( - ) (d) tan ( + ) (e) sin(2) (f) cos (2) (g) sin /2 (h) cos/2 cos = 4/5, 0 < < /2; cos =...
-
This problem compares the after tax income on a $35,000 investment for the following two investors resident in Ontario and two possible investments. Table 2-13 will be of assistance. Stanley Truck...
-
a. What was Chem-Med's rate of sales growth in 2014? What is it forecasted to be in 2015, 2016, and 2017? b. What is the company's rate of net income growth in 2015, 2016, and 2017? Is projected net...
-
Myra Breck must choose between two bonds: Bond A pays $100 annual interest with semiannual payment and has a market value of $800. It has 10 years to maturity. Bond B pays $100 annual interest with...
-
Predictions of future technological advances and breakthroughs are notoriously unreliable. For example, in the 1960 some futurists predicted that we would all soon be commuting to work in our own...
-
What overriding goal should every systems designer, in performing input design, never lose sight of?
-
Despite the inroads being made by other input methods, the venerable keyboard is still far and away the most common method used for data input, and it is likely to stay that way for a while. But...
Study smarter with the SolutionInn App