Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1) Suppose you borrow $800000 when financing a coffee shop which is valued at $1958500. You expect to generate a cash flow of $2200000 at

1) Suppose you borrow $800000 when financing a coffee shop which is valued at $1958500. You expect to generate a cash flow of $2200000 at the end of the year. The cost of debt is 8%. What should the value of the equity be? Note: Express your answers in strictly numerical terms.For example, if the answer is $500, enter 500 as an answer."

"2) Suppose you borrow $800000 when financing a coffee shop which is valued at $1958500. You expect to generate a cash flow of $2200000 at the end of the year. The cost of debt is 8%. What is the cost of equity? Note: Express your answers in strictly numerical terms. For example, if the answer is 5%, write 0.05"

"3) Suppose you borrow $65000 when financing a coffee shop which is valued at $120000. Assume that the unlevered cost of capital for the coffee shop is 7.5% and that the cost of debt is valued at 5%. What should be the cost of equity of your firm? Note: Express your answers in strictly numerical terms. For example, if the answer is 5%, write 0.05"

"4) ECB borrows $1750000 USDs by issuing 4-year bonds. ECB's cost of debt is 5.5%, so it will need to pay $96250 USDs in interest each year for the next 4 years, and then repay the principal $1750000 USD in year 4. ECB's marginal tax rate will remain 35 throughout this period. By how much (in USDs) does the interest tax shield increase the value of ECB? Note: Express your answers in strictly numerical terms.For example, if the answer is $500, enter 500 as an answer."

"5) Axon Industries needs to raise $4000000 USDs for a new investment project. If the firm issues 1-year debt, it may have to pay an interest rate of 10%, although Axon's managers believe that 7% would be a fair rate given the level of risk. If the firm issues equity, they believe the equity may be underpriced by 7.5%.What is the cost (in USDs) to current shareholders of financing the project out of retained earnings? Note: Express your answers in strictly numerical terms.For example, if the answer is $500, enter 500 as an answer."

"6) Axon Industries needs to raise $4000000 USDs for a new investment project. If the firm issues 1-year debt, it may have to pay an interest rate of 10%, although Axon's managers believe that 7% would be a fair rate given the level of risk. If the firm issues equity, they believe the equity may be underpriced by 7.5%.What is the cost (in USDs) to current shareholders of financing the project out of debt? Note: Express your answers in strictly numerical terms.For example, if the answer is $500, enter 500 as an answer."

"7) Axon Industries needs to raise $4000000 USDs for a new investment project. If the firm issues 1-year debt, it may have to pay an interest rate of 10%, although Axon's managers believe that 7% would be a fair rate given the level of risk. If the firm issues equity, they believe the equity may be underpriced by 7.5%.What is the cost (in USDs) to current shareholders of financing the project out of equity? Note: Express your answers in strictly numerical terms.For example, if the answer is $500, enter 500 as an answer."

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Entrepreneurial Finance

Authors: J. Chris Leach, Ronald W. Melicher

6th edition

1305968352, 978-1337635653, 978-1305968356

More Books

Students also viewed these Finance questions