Eun - Chapter 18 #26
Topic: The Adjusted Present Value Model
27.
Using the APV method, what is the value of this project to an all-equity firm?
A.
-$46,502,288.10
B.
$12,494,643.75
C.
$36,580,767.55
D.
-$67,163,445.12
E.
$59,459,301.03
The firm will partially finance the project with an 8% interest-only 4-year loan.
Eun - Chapter 18 #27
Topic: The Adjusted Present Value Model
28.
Using the APV method, what is the value of the debt side effects?
A.
$239,072,652.70
B.
$66,891,713.66
C.
$59,459,301.03
D.
$660,000,000
E.
None of the above
The firm will partially finance the project with an 8% interest-only 4-year loan.
Eun - Chapter 18 #28
Topic: The Adjusted Present Value Model

Consider a project of the Cornell Haul Moving Company, the timing and size of the incremental after-
tax cash flows (for an all-equity firm) are shown below in millions:
The firm's tax rate is 34%; the firm's bonds trade with a yield to maturity of 8%; the current and target
debt-equity ratio is 3; if the firm were financed entirely with equity, the required return would be 10%.
Eun - Chapter 18
29.
Using the weighted average cost of capital methodology, what is the NPV? I didn't round my
intermediate steps. If you do, you're not going to get the right answer.
A.
-$1,406,301.25
B.
$12,494,643.75
C.
$36,580,767.55
D.
$108,994.618.20
E.
$59,459,301.03
Eun - Chapter 18 #29
Topic: The Adjusted Present Value Model
30.
What is the
levered after-tax incremental cash flow for year 2?
A.
$185,796,000
B.
$215,152,000
C.
$267,952,000
D.
$284,848,000
E.
None of the above
The firm will partially finance the project with an 8% interest-only 4-year loan.
Eun - Chapter 18 #30
Topic: The Adjusted Present Value Model
31.
What is the
levered after-tax incremental cash flow for year 4?
A.
-$281,704,000
B.
$465,152,000
C.
-$194,848,000
D.
$460,796,000
E.
None of the above
The firm will partially finance the project with an 8% interest-only 4-year loan.
Eun - Chapter 18 #31
Topic: The Adjusted Present Value Model
32.
Using the flow to equity methodology, what is the value of the equity claim?
A.
-$1,540,000
B.
$446,570,866.00
C.
$36,580,767.55
D.
$470,953,393.70
E.
$30,716,236.13
The firm will partially finance the project with an 8% interest-only 4-year loan.
Eun - Chapter 18 #32
Topic: The Adjusted Present Value Model

33.
Using the APV method, what is the value of this project to an all-equity firm?
A.
-$46,502,288.10
B.
$12,494,643.75
C.
$36,580,767.55
D.
-$67,163,445.12
E.
$59,459,301.03
The firm will partially finance the project with an 8% interest-only 4-year loan.
Eun - Chapter 18 #33
Topic: The Adjusted Present Value Model
34.
Using the APV method, what is the value of the debt side effects?
A.
$239,072,652.70
B.
$66,891,713.66
C.
$59,459,301.03
D.
$660,000,000
E.
None of the above
The firm will partially finance the project with an 8% interest-only 4-year loan.
Eun - Chapter 18 #34
Topic: The Adjusted Present Value Model
35.
In the APV model
A.
interest tax shields are discounted at
i
.
B.
operating cash flows are discounted at
K
u
.
C.
depreciation tax shields are discounted at
i
.
D.
all of the above
Eun - Chapter 18 #35
Topic: The Adjusted Present Value Model
36.
Your firm's existing bonds trade with a yield to maturity of eight percent. The state of Missouri has
offered to loan your firm $10,000,000 at zero percent for five years. Repayment will be of the form of
$2,000,000 per year for five years, the first payment is due in one year. What is the value of this offer?

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