Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

3. You are considering opening another restaurant in the Pizza chain. The new restaurant will have annual revenue of $200,000 and operating expenses of $80,000.

3. You are considering opening another restaurant in the Pizza chain. The new restaurant will have annual revenue of $200,000 and operating expenses of $80,000. Th e annual depreciation and amortization for the assets used in the restaurant will equal $20,000. An annual capital expenditure of $10,000 will be required to offset wear and tear on the assets used in the restaurant, but no additions to working capital will be required. Th e marginal tax rate will be 30 percent. Calculate the incremental annual after-tax free cash flow for the project. (3 Marks)

4. The XXX Co. currently has debt with a market value of $300 million outstanding. The debt consists of Bank loan with 4.5% refinancing interest rate. The firm also has an issue of 2 million preferred shares outstanding with a market price of $11.00 per share. The preferred shares pay an annual dividend of $1.10. Imaginary also has 14 million shares of common stock outstanding with a price of $25.00 per share. The firm is expected to pay a $3 common dividend one year from today, and that dividend is expected to increase by 5 percent per year forever. If Imaginary is subject to a 40 percent marginal tax rate, then what is the firms weighted average cost of capital? (3 Marks)

5. Since venture capital only invest in startup business, very high-risk investments, explain how venture capital minimize their level of risk? (3 Marks)

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_2

Step: 3

blur-text-image_3

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

The Basics Of Public Budgeting And Financial Management

Authors: Charles E. Menifield

4th Edition

0761872116, 978-0761872115

More Books

Students also viewed these Finance questions