Lesson #7, Assignment #2

# Lesson #7, Assignment #2 - \$639,000,000 Market value of...

This preview shows pages 1–2. Sign up to view the full content.

Chapter 14 Question 26 Input Area: Land price \$4,000,000 Current land value \$5,100,000 Land value in 5 years \$6,000,000 \$35,000,000 Debt Bonds outstanding 240,000 Settlement date 01/01/08 Maturity date 01/01/28 Annual coupon rate 7.50% Coupons per year 2 Face value (% of par) 100 Bond price (% of par) 94 Common stock Shares outstanding 9,000,000 Beta 1.20 Share price \$71.00 Preferred stock outstanding Shares outstanding 400,000 Coupon rate 5.50% Share price \$81.00 Market Market risk premium 8.00% Risk-free rate 5.00% Equity floatation cost 8.00% Preferred floatation cost 6.00% Debt floatation cost 4.00% Tax rate 35% Net working capital \$1,300,000 Does the NWC require floatation costs (Yes/No) No b. Adjustment factor 2% c. Life of plant (years) 8 Life of project (years) 5 Plant salvage value \$6,000,000 d. Annual fixed costs \$7,000,000 # RDS manufactured 18,000 Sale price per RDS \$10,900 Variable costs per RDS \$9,400

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Output Area: Market value of debt \$225,600,000 Market value of equity
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: \$639,000,000 Market value of preferred \$32,400,000 Market value of firm \$897,000,000 D/V 0.0527 E/V 0.1460 P/V 0.0679 a. Floatation costs 0.0692 The cost of the land 3 years ago is a sunk cost and is irrelevant. Land \$5,100,000 Plant (including floatation) 1,396,674.0000 Net working capital \$13,000,000 \$44,099,439 b. Pretax cost of debt 8.11% Aftertax cost of debt 5.27% Cost of equity 14.60% Cost of preferred 6.79% WACC 11.97% Discount rate for project 13.97% c. Book value in year 5 \$13,125,000 Aftertax salvage value \$8,493,750 d. Sales \$18,000 Variable costs \$9,400 Fixed costs \$7,000,000 Depreciation \$4,375,000 EBIT \$6,000,000 Taxes \$7,125,000 Net income \$10,900 Depreciation \$4,375,000 Operating cash flow \$14,531,250 e. Accounting breakeven 7,583 f. Year Cash Flow \$(44,002,765) 1 \$14,531,250 2 \$14,531,250 3 \$14,531,250 4 \$14,531,250 5 \$30,325,000 IRR 25.25% NPV \$14,130,713.81...
View Full Document

## This note was uploaded on 04/29/2011 for the course FINANCE BA521 taught by Professor Mark during the Spring '11 term at Antelope Valley College.

### Page1 / 2

Lesson #7, Assignment #2 - \$639,000,000 Market value of...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online