BusM 401
Problem Set #12
Advanced Valuation Techniques
Instructions:
Complete all questions.
This problem set will not be graded, but you will still be
required to understand all of the material contained in it.
Short answers (“checkpoints”) are
available for some questions on Blackboard so that you can check your answers.
Full solutions
will be available on Blackboard before the exam.
(Some full answers are found in the back of
Higgins; it’s best not to look at these until you have tried your best to answer the question.)
Congratulations, this is your last one.
1.
You are valuing STU Corporation’s Alpha project using the APV method.
You
already found the present value of free cash flows from the project (discounted at the
appropriate cost of equity) to be $500,000.
The only important side effect of financing is
the present value of debt tax shields.
The Alpha project can support a constant $1 million
in debt over the life of the project, which is 3 years.
STU Corp’s tax rate is 50%, and the
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 Fall '10
 ToddMitton
 Depreciation, Net Present Value, Valuation, GHI, annual operating expense

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