Cash flow , level of debt
Not what you're looking for?
Arduo Associates, a financial and accounting consulting firm, received a request from a major client. The client is considering
2 new projects. You, a junior financial analyst, are assigned to prepare a quantitative analysis based on the information
provided by the client. To save your analysis, you needn't consider change in work capital, depreciation, and salvage value.
Note the return on asset given is rate of return on assets all financed by equity capital, in other words, the ROA of an all-equity company.
Project A:
Cash flows are perpetual. Debt is also perpetual.
Annual revenue = $250,000.00
Costs = 60% of sales
Initial investments = $425,000.00
tax rate 20%
return on asset = 20%
Firm is considering 3 scenarios: all equity, $150,000 of debt, and $200,000 of debt, at 10% cost of debt.
Analyze these 3 scenarios.
Project B:
Project life = 4 years
Annual sales revenue = $250,000.00
Costs = 40% of sales
Initial investments = $275,000.00
tax rate = 20%
return on asset = 20%
Firm is considering 3 scenarios: all equity, $150,000 of debt, and $200,000 of debt, at 10% cost of debt.
Analyze these 3 scenarios.
Which project and what level of debt would you recommend? Justify your decision.
Purchase this Solution
Solution Summary
Excel file contains analysis of 2 projects at different level of debt.
Purchase this Solution
Free BrainMass Quizzes
MS Word 2010-Tricky Features
These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.
Employee Orientation
Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.
Motivation
This tests some key elements of major motivation theories.
Understanding Management
This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.
Business Processes
This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.