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

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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
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Output Area: Market value of debt $225,600,000 Market value of equity
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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...
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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.

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

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