Purchase Solution

Investment Management

Not what you're looking for?

Ask Custom Question

(The following information relates to Questions 28 to 31)

A project's after-tax operating cash inflows are $175,000 per year for each of the next four years. The initial investment is $500,000. The unlevered cost of equity capital is 15%. The risk-free interest rate is 7%

28. What is the base-case NPV?
A) $750
B) -$375
C) $1,098
D) -$653

29. If the project is financed entirely with stock issues, the flotation costs are equal to 6% of the gross proceeds. What is the project's adjusted present value (APV)?
A) $31,540
B) -$32,290
C) -$26,695
D) $616

30. Assume that the project is financed entirely with debt issues. The interest rate is 11% and the firm is in a 30% tax bracket. While the firm only has to make annual interest payments, the loan will be paid back in total when the project ends. What is the APV?
A) $55,000
B) $26,315
C) $46,733
D) -$62,810

31. If the project is financed entirely with a special loan, the subsidized rate will only be 4% although the fair market rate is 10%. Under this loan, the firm makes annual year-end interest payments, repaying the principal at the end of four years. How much are the savings associated with this subsidy?
A) $95,100
B) $34,150
C) $63,400
D) $75,000

Purchase this Solution

Solution Summary

Full answers will all questions solved, not just answers.

Solution Preview

Please see the attached file.

ANSWER 28
Base case NPV = 175000 PVIFA (15%, 4) -500000
= -$ 378.79
i.e. $ 375 ...

Solution provided by:
Education
  • MBA (IP), International Center for Internationa Business
  • BBA, University of Rajasthan
Recent Feedback
  • "Thank You so much! "
  • "Always provide great help, I highly recommend Mr. Sharma over others, thanks again. "
  • "great job. I will need another help from you. "
  • "first class!"
  • "Thank you for your great notes. Will you be willing to help me with one more assignment? "
Purchase this Solution


Free BrainMass Quizzes
Learning Lean

This quiz will help you understand the basic concepts of Lean.

Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.

Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.