ABCD Corporation, a leading electronics manufacturer, is considering selling $15 million in bonds with a maturity of

Fantastic news! We've Found the answer you've been seeking!

Question:

ABCD Corporation, a leading electronics manufacturer, is considering selling $15 million in bonds with a maturity of 15 years, a coupon interest rate of 8%, and a face value (par) of $1,000. Because current market interest rates are greater than 8%, the company must sell the bond for $950. The emission cost (flotation cost) is 3% or $28.50. So, the net funds the company receives for each bond are $921.50 ($950 - $28.50).
You are asked to calculate the long-term debt costs before tax (before-tax cost of debt) and after-tax (after-tax cost of debt) that ABCD Corporation will incur as a result of the issuance of this bond. Assume the corporate tax rate is 28%.

2. Company XYZ, a manufacturing company, is seeking funds for an expansion project. The company's current capital structure consists of common stock, preferred stock, and long-term debt. The following is information regarding these capital components:
Common stock:
Number of common shares outstanding: 1,000,000 shares
Market price per share: IDR 10,000
Expected profit level (expected return): 12%
Preferred Shares:
Number of preferred shares outstanding: 200,000 shares
Market price per share: IDR 50,000
Dividend per share: IDR 4,000
Expected profit rate (expected return): 8%
Long-term debt:
Amount owed: IDR 5,000,000,000
Pre-tax interest rate: 10%
Corporate tax rate: 30%
Question: You are asked to calculate the weighted average cost of capital (WACC) for Company XYZ.

3. PT XYZ, a manufacturing company, is considering investing in purchasing new heavy equipment to increase productivity. This company has two choices of heavy equipment, Equipment A and Equipment B. The following is information related to these two pieces of heavy equipment:
Tool A:
Purchase price: Rp. 1,200,000,000
Cash flow income (cash inflow) per year: IDR 300,000,000
Tool B:
Purchase price: IDR 1,500,000,000
Cash flow income (cash inflow) per year: IDR 350,000,000
Question:
a. Calculate the Payback Period for each heavy equipment option.
b. Based on the Payback Period, which machine is better for the company to choose?

4. PT ABC, a manufacturing company, is considering investing in two different projects, Project X and Project Y. Project X involves purchasing new machinery to increase production efficiency, while Project Y involves developing a new product. The following is information related to both projects:

Project X:
Initial investment: IDR 800,000,000
Net cash flow per year:
Year 1: IDR 250,000,000
Year 2: IDR 300,000,000
Year 3: IDR 350,000,000
Year 4: IDR 400,000,000

Project Y:
Initial investment: IDR 1,000,000,000
Net cash flow per year:
Year 1: IDR 200,000,000
Year 2: IDR 300,000,000
Year 3: IDR 400,000,000
Year 4: IDR 500,000,000

The discount rate used by the company is 10%.
Question:
a. Calculate the Net Present Value (NPV) for each project.
b. Based on the Accept-Reject approach, which projects should the company accept or reject? Explain the reasons for the selection.

5. A company called PT XYZ has invested some money in an infrastructure project. The following is the data obtained:

Initial investment: IDR 1,500,000,000
Net cash flow per year:
Year 1: IDR 400,000,000
Year 2: IDR 600,000,000
Year 3: IDR 800,000,000
Cost of capital: 12%

Question:
a. Calculate Economic Value Added (EVA) for each project year.
b. Does the project provide positive economic added value for the company? Explain.