Share Bbcc AaBbCcl AaBbccI AABBCC AABBCC AaBBC cense E... Quote Intense Q... Subtle Rel... Intense Re. Book Title AaBbCI 1 List Para... Find - Replace Select Dictate Editing Voice 1. Calculate the project's Time 0 cash flow, taking into account all side effects. 2. The resort has an eight-year tax life, and DH uses straight-line depreciation. At the end of the project (i.e., the end of year 5), the resort can be scrapped for $1.75 million. What is the after tax salvage value of this resort? 3. The company will incur $1,050,000 in annual fixed costs. The plan is to sell 11.000 exotic vacations per year and sell them at $10,000 per vacation, the variable costs are $9,200 per vacation. What is the annual operating cash flow, OCF, from this project? BE Cost of Capit AutoSave Of H 2. be File Home Insert Design Layout References Mailings 9 X Cut Times New Ro - 12 AA Aa A Format Painter BIU * *, * AL.A. Font Review View Help E . E. 21 - Paragraph Search dabCd AaBbc AaBbccI ABC AaBbccc AaB AaBbcc dabbcc Emphasis Heading 1 1 Normal Strong Subtitle Title T No Spac... Subtle Em... Copy Paste Clipboard Styles FIN 2100 Corporate finance Case Study - Capital Budgeting Name Please show your work. If you use a financial calculator or Excel, you must still provide the appropriate formulas. No Work means No Credit! Project Evaluation. This is a comprehensive project evaluation problem bringing together much of what you have learned in this and previous chapters. Suppose you have been hired as a financial consultant to Destination Hotels. (DH). The company is looking at building a new resort in the exotic location of Hilton Head Island. This will be a five-year project. The company bought some land three years ago for $6 million. If the land were sold today, the net proceeds would be $7.4 million after taxes. The company wants to build its new resort on this land; the resort will cost $8.8 million to build. The following market data on DH's securities are current: Firm: DH is a stable (Blue Chip) firm that enjoyed an Earnings Per Share of $10, and a Return On Equity of 8%. Free Cash flow for next year is $2,232,000. Industry: The industry Price Earnings Ratio is 6.5. Debt: 15,000 8 percent coupon bonds outstanding, with 20 years to maturity, the bonds have a $1,000 par value each and make semi-annual payments. DH's bond rating is BBB. The market rate for a BBB bond is 8.7% Preferred stock: 20,000 shares of preferred stock outstanding. DH has paid this year's dividend. Next year's dividend is $6, with a growth rate of 5% thereafter. The market has been giving investors a 8.5% return on DH's preferred stock. Common equity: 300,000 shares outstanding, selling for $67 per share; the beta 1.25. Common Dividends: A current dividend of 86 has not been paid. DH's payout ratio is 40%. DH pride themselves on their dividend policy, of allowing investor payouts to grow concurrently with the firm. Market: 7.8 percent expected market risk premium; a 5.20 percent risk-free rate. DH's tax rate is 34 percent. The project requires $825,000 in initial net working capital investment to get operational. Page 1 of 8 56 of 757 words