Mesa Media is evaluating a project to help increase sales. The project costs $580,000 and has an IRR equal to 14 percent. The project is divisible, which means any portion can be purchased. Mesa can raise up to $74,000 in new debt at a before-tax cost (ra) equal to 5 percent; additional debt will cost 7 percent before taxes. Mesa expects to retain $392,000 of its earnings this year to support the purchase of the project. Mesa's cost of retained earnings is 13 percent, and its cost of new common equity is 17 percent. Its target capital structure consists of 20 percent debt and 80 percent common equity. If Mesa's marginal tax rate is 40 percent, how much of the project should be purchased? Round your answer to the nearest dollar. $

Mesa Media is evaluating a project to help increase sales. The project costs $580,000 and has an IRR equal to 14 percent. The project is divisible, which means any portion can be purchased. Mesa can raise up to $74,000 in new debt at a before-tax cost (ra) equal to 5 percent; additional debt will cost 7 percent before taxes. Mesa expects to retain $392,000 of its earnings this year to support the purchase of the project. Mesa's cost of retained earnings is 13 percent, and its cost of new common equity is 17 percent. Its target capital structure consists of 20 percent debt and 80 percent common equity. If Mesa's marginal tax rate is 40 percent, how much of the project should be purchased? Round your answer to the nearest dollar. $

Name: QC 12. Mesa Media is evaluating a project to help increase sales. The
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Description: QC 12. Mesa Media is evaluating a project to help increase sales. The project costs $580,000 and has an IRR equal to 14 percent. The project is divisible, which meansany portion can be purchased. Mesa can raise up to $74,000 in new debt at a before-t

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter4: Financial Planning And Forecasting

Section: Chapter Questions

Problem 6P

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Mesa Media is evaluating a project to help increase sales. The project costs $430,000 and has an IRR equal to 13 percent. The project is divisible, which means any portion can be purchased. Mesa can raise up to $60,000 in new debt at a before-tax cost (rd) equal to 7 percent; additional debt will cost 10 percent before taxes. Mesa expects to retain $304,000 of its earnings this year to support the purchase of the project. Mesa's cost of retained earnings is 13 percent, and its cost of new common equity is 15 percent. Its target capital structure consists of 20 percent debt and 80 percent common equity. If Mesa's marginal tax rate is 40 percent, how much of the project should be purchased? Round your answer to the nearest dollar. $ _______
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Mid-America Shipping is considering purchasing a new barge for use on its Ohio River routes. The new barge will cost S13.2 million and is expected to generate an income of $7.5 million the first year (growing $1M each year), with additional expenses of $2.6 million the first year (growing $400,000 per year). If Mid-America uses MACRS, is in the 26% tax bracket, and has a MARR of 12%, what is the present worth of the first 4 years of after-tax cash flows from this barge? Would you recommend that Mid-America purchase this barge? Does your answer change at 5 or 6 or 7 or ...years?
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The Seaboard Sail school is considering the purchase of new boats for $260,000. The firm's old sailboats have a sell value of $54,000. The boats are subject to a 15% CCA. This investment will generate additional Cash flows revenue $45,000 for 8 years after taxes through reduced fuel and maintenance expenses. Seaboard is in the 30% tax bracket and has a 9% cost of capital. Calculate the net present value of Seaboard's purchase and state whether or not the firm should buy the boats. 1. What is the net amount of the replacement 2. Calculate Present Value of After-tax Savings for the 8 years (Hint: you can calcuate the PV for all years all at once using PMT) 3. Calculate PV of Tax Shield (CCA) 4. Calculate the NPV by using amounts from above and in question details and indicate if they should buy the machine.
SummerTyme Inc is considering a new three year expansion project that requires an initial fixed asset investment of $3.9 million. The fixed asset will be depreciated straight-line to zero over its three-year life, after which time it will be worthless. The project is estimated to generate $2,650,000 in annual sales, with costs of $840,000. The tax rate is 35%. The discount rate is 12%. 3. What is the OCF each year for this project? Assuming the required return on this project is 12%, what is the project's NPV? What is the project's IRR? Should you accept or reject this project? Suppose the project requires an initial investment in net working capital of $300,000, and the fixed asset will have a market value of $210,000 at the end of the project. What is the project's year 0 net cash flow? Year 1? Year 2? Year 3? What is the new NPV? а. b. с. d. Discuss how sunk costs, opportunity costs, side effects, financing costs, and taxes should be treated in capital budgeting analysis and why.…
Celtic Inc. is considering a 16-year project that will generate before tax cash flow of $18,000 peryear for 16 years. The project requires a machine that costs $96,000. The CCA rate is 20% andthe salvage value is $9,600. Celtic has cash of $66,000 and needs to borrow the balance at 6%interest rate to purchase the machine. Celtic is required to repay $10,000 at year 4 and theremaining balance at year 16. The corporate tax rate is 30%.If the weighted average cost of capital is 11% and the machine is the only asset in the assetclass, calculate the NPV of the project using the WACC approach.
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