comprehensive+problem+a(2)

comprehensive+problem+a(2) - Net income before taxes Income...

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Comprehensive Problem XYZ Company Assume the following: Cost of the investment is $4,500 and will be sold at the end of year 5 for $1,400 XYZ Beta 0.80 Risk free Treasury Bill rate 1.50% Market Portfolio Rate 9.00% Tax rate 40.00% Equity: XYZ Common Stock (Market value) $23,000,000 XYZ Preferred stock 4% (Market value) $5,000,000 Long-debt: Bonds Payable (taxable, $1,000 face value) 6% $12,000,000 Face value Notes Payable (taxable) 5% $8,000,000 market value Bonds mature in 15 years and have an annual coupon payment Bonds have a market value of $1,050 1-Fill in the boxes below: 0 1 2 3 4 5 Proforma Sales 5000 5200 5500 6000 6500 Cost of goods Sold 2000 2080 2200 2400 2600 Gross profit Operating expenses Salaries 1200 1200 1200 1200 1200 Depreciation 500 500 500 500 500 Other operating expenses 800 800 800 800 800 Total operating expenses
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Unformatted text preview: Net income before taxes Income tax 40% Net Income Working capital required each year-400-800-1000-1000-900 2-Show the net cash-flows for the project by year Capital investment Net Income Depreciation Change in working capital Net cash flow 1-Using the Capital Asset Pricing Model (CAPM) determine expected return for investors of XYZ Company. 2- Calculate the Weighted Average Cost of Capital (WACC) using the CAPM calculated in 1 for the required rate of return for investors. Amount % total % 1 - tax rate WACC 3- Calculate the Net Present Value (NPV) using the WACC calculated in 2 as the opportunity cost of capital 4- Calculate the Internal Rate of Return (IRR) for the project. 5- Should the Project be accepted?...
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This note was uploaded on 08/22/2011 for the course ACCOUNTING 201 taught by Professor Stevejoseph during the Winter '11 term at Aarhus Universitet.

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