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Assignment 8 Luyao Wang

# Assignment 8 Luyao Wang - Review Questions 1 4 Owner's...

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Assignment 8 Luyao Wang A39824471 8.3 Year 1 Year 2 Year 3 Year 4 Annual Revenue 30,000 30,000 30,000 30,000 Annual Operating Expense 14,000 14,000 14,000 14,000 Annual Depreciation 4,000 4,000 4,000 4,000 Taxable Income 12,000 12,000 12,000 12,000  - Taxes (@40%) 4,800 4,800 4,800 4,800 Net Income 7,200 7,200 7,200 7,200 Depreciation 4,000 4,000 4,000 4,000 After-Tax Operating Cash Flow 11,200 11,200 11,200 11,200 8.6 Ke = 0.06 + (0.16-0.06) * 1.5 = 0.21 Ka = (1 - 0.5) (0.21) + (0.5) (0.1) (1-0.3) = 0.14 NPV = -20,000 + 11,200 [PVA 4, 14]            = -20,000 + 32,633           =  12,633

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Unformatted text preview: Review Questions 1 4 Owner's value today is equal to any dividend to be paid to the owners today plus the value today of risky dividends to which their ownership in the hospitality firm gives them a claim. By using WACC approach, manager only need to estimate the relevant after-tax operating cash flow project and the total capital investment in the project and to calculate the NPV. They don't need to k exactly how the project would be financed. f all future ws of the know...
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Assignment 8 Luyao Wang - Review Questions 1 4 Owner's...

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