CIP Co, a telecommunications company, is considering an investment of $150 million into a wind farm. The wind farm is expected to generate after-tax cash flows of $75 million in Year 1, $120 million in Year 2, and $175 million in Year 3. CIP Co’s WACC is 12% but some members of management believe the project should be assessed
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CIP Co, a telecommunications company, is considering an investment of $150 million into a wind farm. The wind farm is expected to generate after-tax cash flows of $75 million in Year 1, $120 million in Year 2, and $175 million in Year 3. CIP Co’s WACC is 12% but some members of management believe the project should be assessed using a discount rate of 15% (which is what Major Bank Ltd advises is a typical discount rate for a wind farm project). The company has spent $15 million up to today researching this opportunity. The
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- CIP Co, a telecommunications company, is considering an investment of $150 million into a wind farm. The wind farm is expected to generate after-tax cash flows of $75 million in Year 1, $120 million in Year 2, and $175 million in Year 3. CIP Co’s WACC is 12% but some members of management believe the project should be assessed using a discount rate of 15% (which is what Major Bank Ltd advises is a typical discount rate for a wind farm project). The company has spent $15 million up to today researching this opportunity. What is NPV?Dayton Mechanical, Inc. is currently evaluating a potential new investment. The investment will be financed with 5700,000 of debt and $1,200,000 of equity. The (unleveraged) after-lax cash flows, the CATs, expected to result from the investment are $1 million per year for three years, after which time the project is expected to be sold off for a net after-tax $1 million in cash. The debt financing will take the form of three-year debt with interest payments of 12% per year on the remaining balance. Principal payments will be $100,000 in year 1, $200,000 in year 2, and $400,000 at the end of year 3. The net-benefit-to-leverage factor, T^, is 0.25 for this investment. The (unleveraged) required return for the project is 20%. What is the present value of the interest tax shield from the project?Consider a hypothetical economy that has NO tax.ABC Ltd. is considering investing in a 2-year project which is expected to generate the followingyear-end cash flows: C1 = $110 million, C2 = $115 million. The yearly discount rate for the projectis 10%. The initial cost of the project is $200 million.(a) Compute the profit and NPV of the project. (b) Based on the answer of part (a), should the project be accepted? Explain.(c) ABC’s cut-off period is 2 years. Compute the PI and Payback of the project. Based on thesetwo methods, should ABC accept the project?(d) Write down the numerical formula for computing the IRR of this project. What is theminimum IRR value that would make this project acceptable? Explain. (e) Given the recommendations based on the four decision rules above, which project shouldABC Ltd. accept? (f) Now suppose that of the $200m initial expenditure, $50m was used for the purchase of amachine that has an estimated economic life of four years. The machine will be…
- Mattice Corporation is considering investing $790,000 in a project. The life of the project would be 6 years. The project would require additional working capital of $29,000, which would be released for use elsewhere at the end of the project. The annual net cash inflows would be $168,000. The salvage value of the assets used in the project would be $39,000. The company uses a discount rate of 13%. (Ignore income taxes.) Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. Required: Compute the net present value of the project. Note: Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to the nearest whole dollar amount. Net present value ering... 23 DaanEternals Inc., a large salmon canning firm operating out of Valdez, Alaska, has a new automated production line project it is considering. The project has a cost of P275,000 and is expected to provide after-tax annual cash flows of P73,306 for eight years. The firm’s management is uncomfortable with the IRR reinvestment assumption and prefers the modified IRR approach. You have calculated a cost of capital for the firm of 12%. What is the project’s MIRR? 15.0% 14.0% 12.0% 16.0%Guardian Inc. is trying to develop an asset-financing plan. The firm has $500,000 in temporary current assets and $400,000 in permanent current assets. Guardian also has $600,000 in fixed assets. Assume a tax rate of 30 percent. a. Construct two alternative financing plans for Guardian. One of the plans should be conservative, with 80 percent of assets financed by long-term sources, and the other should be aggressive, with only 56.25 percent of assets financed by long-term sources. The current interest rate is 12 percent on long-term funds and 6 percent on short-term financing. Compute the annual interest payments under each plan. Annual Interest Conservative Aggressive b. Given that Guardian's earnings before interest and taxes are $380,000, calculate earnings after taxes for each of your alternatives. Earning After Taxes Conservative Aggressive
- Marites Company is considering a 5-year project. The company plans to invest P900,000 now and it forecasts cash flows for each year of P270,000. The company requires that investments yield a discount rate of at least 14%. Calculate the internal rate of return to determine whether it should accept this project. Group of answer choices A. The project should be rejected because it will not earn exactly 14%. B. The project should be rejected because it will earn less than 14%. C. The project should be accepted because it will earn more than 10%. D. The project will earn more than 12% but less than 14%. At a hurdle rate of 14%, the project should be rejected. E. The project should be accepted because it will earn more than 14%.ordon Corporation is considering the acquisition of a new machine that costs $149,040. The machine is expected to have a four-year service life and will produce annual savings in cash operating costs of $45,000. Gordon evaluates investments by using the internal rate of return and ignores income taxes. Compute the machine's internal rate of return. Give your answer in decimal form. Hint: be sure you give the interest rate not the factor. If the company has a hurdle rate of 10% would they accept the investment? Why or why notOrchard Farms has a pretax cost of debt of 7.68 percent and a cost of equity of 15.2 percent. The firm uses the subjective approach to determine project discount rates. Currently, the firm is considering a project to which it has assigned an adjustment factor of -0.5 percent. The firm's tax rate is 34 percent and its debt-equity ratio is 0.45. The project has an initial cost of $4.3 million and produces cash inflows of $1.27 million a year for 5 years. What is the net present value of the project
- Smiley’s Manufacturing Company is considering the purchase of a small business, J&R Raw Material Limited. This company currently earns after-tax cash flow of 250,000 per year. On the basis of a review of similar risk investment opportunities, one must earn a 11% rate of return on the proposed purchase. Please answer the following questions: a. What is the firm’s value if the company’s after-tax cash flows are not expected to grow for the foreseeable future? b. What is the firm’s value if after-tax cash flows are expected to grow at an annual rate of 2.5% for the foreseeable future? c. What price should you pay for J&R Consulting Limited if the after-tax cash flows are not expected to grow for the first two years, but then in year 3 it is expected to grow by 3% and then from year 4 onwards it is expected to grow by a constant annual rate of 4%? d. Your friend, Jenny, is risk averse and is considering which between a government bond investment and the purchase…Guardian Inc. is trying to develop an asset-financing plan. The firm has $400,000 in temporary current assets and $300,000 in permanent current assets. Guardian also has $500,000 in fixed assets. Assume a tax rate of 40 percent. a. Construct two alternative financing plans for Guardian. One of the plans should be conservative, with 75 percent of assets financed by long-term sources, and the other should be aggressive, with only 56.25 percent of assets financed by long-term sources. The current interest rate is 15 percent on long-term funds and 10 percent on short-term financing. Compute the annual interest payments under each plan. b. Given that Guardian’s earnings before interest and taxes are $200,000, calculate earnings after taxes for each of your alternatives. c. What would the annual interest and earnings after taxes for the conservative and aggressive strategies be if the short-term and long-term interest rates were reversed?Assume that you are given assignment to evaluate the capital budgeting projects of the company which is considering investing in two Solar Energy projects, “Jamper Solar Project” and “Sajawal Solar Project”. The initial cost of each project is Rs. 10000 Million. Company discount all projects based on WACC. Further, all the projects are equally risky projects, and the company uses only debt and common equity for financing these projects. It can borrow unlimited amounts at interest rate of rd 10% as long as it finances at its target capital structure, which calls for 50% debt and 50% common equity. The dividend for current period is Rs 7.36, its expected that the dividend will grow at the constant growth rate of 8%, and the company’s common stock sells for 80. The tax rate is 50%.
