Herriman Solutions needs $14.4 million to build a new assembly line. The company's target debt-equity ratio is 1.08. The flotation cost for new equity is 10.2 percent, but the floatation cost for debt is only 5.7 percent. The company has sufficient resources to finance the equity portion of the assembly line internally. What is the true cost of building the new assembly line after taking flotation costs into account? Total initial cost $

Herriman Solutions needs $14.4 million to build a new assembly line. The company's target debt-equity ratio is 1.08. The flotation cost for new equity is 10.2 percent, but the floatation cost for debt is only 5.7 percent. The company has sufficient resources to finance the equity portion of the assembly line internally. What is the true cost of building the new assembly line after taking flotation costs into account? Total initial cost $

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter19: Lease Financing

Section: Chapter Questions

Problem 1P: Reynolds Construction (RC) needs a piece of equipment that costs 200. RC can either lease the...

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Lobster Seafood Corp. is planning to build a new shipping depot. The initial cost of the investment is $1.18 million. Efficiencies from the new depot are expected to generate an annual after-tax cost reduction of $105,000 forever. The corporation has a total value of $65 million and has outstanding debt of $45 million. What is the NPV of the project if the firm has an aftertax cost of debt of 5.8 percent and a cost equity of 12.6 percent? $244,843 $150,409 $480,584 $67,715
Consider the case of Acme Manufacturing: Acme Manufacturing is considering a project that requires an investment in new equipment of $3,200,000, with an additional $160,000 in shipping and installation costs. Acme estimates that its accounts receivable and inventories need to increase by $640,000 to support the new project, some of which is financed by a $256,000 increase in spontaneous liabilities (accounts payable and accruals). The total cost of Acme's new equipment is In contrast, Acme's initial net investment outlay is Suppose Acme's new equipment is expected to sell for $200,000 at the end of its four-year useful life, and at the same time, the firm expects to recover all of its net working capital investment. The company chose to use straight-line depreciation, and the new equipment was fully depreciated by the end of its useful life. If the firm's tax rate is 40%, what is the project's total termination cash flow? $504,000 $464,000 → $200,000 and consists of the price of the…
The Webster Corp. is planning construction of a new shipping depot for its single manufacturing plant. The initial cost of the investment is $1 million. Efficiencies from the new depot are expected to reduce costs by $100,000 per year forever. The corporation has a total value of $60 million and has outstanding debt of $40 million. What is the NPV of the project if the firm has an after tax cost of debt of 6% and a cost equity of 9%? A. $428,571 B. $565,547 C. $1,000,000 D. None of these is the correct NPV
Moda Produce is considering the purchase of a new machine to replace the existing asset. The current market value of the old fixed asset is $14,000, and $5,000 is its book value. The new equipment's cost as a fixed asset is $30,000. If the firm's marginal tax rate is 40%, what is the initial investment outlay for the acquisition of this new asset?
Acme Manufacturing is considering a project that requires an investment in new equipment of $3,200,000, with an additional $160,000 in shipping and installation costs. Acme estimates that its accounts receivable and inventories need to increase by $640,000 to support the new project, some of which is financed by a $256,000 increase in spontaneous liabilities (accounts payable and accruals). The total cost of Acme's new equipment is In contrast, Acme's initial investment outlay is Suppose Acme's new equipment is expected to sell for $200,000 at the end of its four-year useful life, and at the same time, the firm expects to recover all of its net operating working capital investment. The company chose to use straight-line depreciation, and the new equipment was fully depreciated by the end of its useful life. If the firm's tax rate is 40%, what is the project's total terminal cash flow? $200,000 $120,000 $464,000 and consists of the price of the new equipment plus the $504,000
Acme Manufacturing is considering a project that requires an investment in new equipment of $3,200,000, with an additional $160,000 in shipping and installation costs. Acme estimates that its accounts receivable and inventories need to increase by $640,000 to support the new project, some of which is financed by a $256,000 increase in spontaneous liabilities (accounts payable and accruals). The total cost of Acme’s new equipment is and consists of the price of the new equipment plus the . In contrast, Acme’s initial net investment outlay is . Suppose Acme’s new equipment is expected to sell for $200,000 at the end of its four-year useful life, and at the same time, the firm expects to recover all of its net working capital investment. The company chose to use straight-line depreciation, and the new equipment was fully depreciated by the end of its useful life. If the firm’s tax rate is 40%, what is the project’s total termination cash flow? $120,000…
KMT Stores is considering a renovation of its store. The project will cost $100,000.00. The company can issue 7%, $5,000.00 bonds to finance 90% of the project. The remaining capital will come from internal sources. The renovation should enable the business to serve more customers. Complete the form to evaluate the effect of financial leverage on the proposed renovation. Evaluate the earnings potential of the project assuming that operating income will increase by 6%, 7%, or 8% of the project cost.
A company is considering purchasing an equipment for $136,840. Shipping and installation costs would cost another $6,599. The project would require an initial investment in net working capital of $21,243 which would be recouped at the end of the project. What is the project's initial outlay? Do not enter $ or comma in the answer answer. Enter your final answer of initial outlay as an absolute number (that means, enter it as a positive number).
Chadron Motors is reviewing a project with sales of 6,200 units, ±2 percent, at a sales price of $29, ±1 percent, per unit. The expected variable cost per unit is $11, ±3 percent, and the expected fixed costs are $85,578, ±1 percent. The depreciation expense is $68,000 and the tax rate is 21 percent. What is the net income under the worst-case scenario? A. $4,696 B. –$28,704 C. $15,846 D. −$39,713 E. −$38,578
Guardian Incorporated is trying to develop an asset-financing plan. The firm has $390,000 in temporary current assets and $290,000 in permanent current assets. Guardian also has $490,000 in fixed assets. Assume a tax rate of 40 percent. Construct two alternative financing plans for Guardian. One of the plans should be conservative, with 90 percent of assets financed by long-term sources, and the other should be aggressive, with only 56.25 percent of assets financed by long-term sources. The current interest rate is 12 percent on long-term funds and 8 percent on short-term financing. Compute the annual interest payments under each plan. Given that Guardian’s earnings before interest and taxes are $270,000, calculate earnings after taxes for each of your alternatives. What would the annual interest and earnings after taxes for the conservative and aggressive strategies be if the short-term and long-term interest rates were reversed?
A proposed project has fixed costs of $108,000 per year. The operating cash flow at 6,800 units is $96,600. Ignore the effect of taxes. a. What is the degree of operating leverage? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) b. If units sold rise from 6,800 to 7,300, what will be the new operating cash flow? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. If units sold rise from 6,800 to 7,300, what is the new degree of operating leverage? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.)
eEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The system costs $55,000 to purchase and install and $32,000 to operate each year. The system is estimated to be useful for 4 years. Management expects the new system to reduce the cost of managing inventories by $61,500 per year. The firm’s cost of capital (discount rate) is 11%. Required: 1. What is the net present value (NPV) of the proposed investment under each of the following independent situations? (Use the appropriate present value factors from Appendix C, TABLE 1 and Appendix C, TABLE 2.) 1a. The firm is not yet profitable and therefore pays no income taxes. 1b. The firm is in the 30% income tax bracket and uses straight-line (SLN) depreciation with no salvage value. Assume MACRS rules do not apply. 1c. The firm is in the 30% income tax bracket and uses double-declining-balance (DDB) depreciation with no salvage value. Given a four-year life, the DDB…