Benton is a rental car company that is trying to determine whether to add 25 cars to its fleet. The company fully depreciates all its rental cars over six years using the straightline method. The new cars are expected to generate $190,000 per year in earnings before taxes and depreciation for six years. The company is entirely financed by equity and has a 25 percent tax rate. The required return on the company's unlevered equity is 14 percent and the new fleet will not change the risk of the company. The risk-free rate is 6 percent. a. What is the maximum price that the company should be willing to pay for the new fleet of cars if it remains an all-equity company? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Suppose the company can purchase the fleet of cars for $695,000. Additionally. assume the company can issue $510,000 of six-year debt to finance the project at the risk-free rate of 6 percent. All principal will be repaid in one balloon payment at the end of the sixth year. What is the APV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Pompeii Pizza Club owns three identical restaurants popular for their specialty pizzas. Each restaurant has a debt-equity ratio of 35 percent and makes interest payments of $57,000 at the end of each year. The cost of the firm's levered equity is 18 percent. Each store estimates that annual sales will be $1.5 million; annual cost of goods sold will be $820,000; and annual general and administrative costs will be $480,000. These cash flows are expected to remain the same forever. The corporate tax rate is 25 percent. a. Use the flow to equity approach to determine the value of the company's equity. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) b. What is the total value of the company? (Do not round intermecliate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) National Electric Company (NEC) is considering a $45.06 million project in its power systems division. Tom Edison, the company's chief financial officer, has evaluated the project and determined that the project's unlevered cash flows will be $3.17 million per year in perpetuity. Mr. Edison has devised two possibilities for raising the initial investment: Issuing 10 -year bonds or issuing common stock. The company's pretax cost of debt is 6.6 percent and its cost of equity is 11.4 percent. The company's target debt-tovalue ratio is 85 percent. The project has the same risk as the company's existing businesses and it will support the same amount of debt. The tax rate is 20 percent. Calculate the weighted average cost of capital. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Calculate the net present value of the project. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) Triad Corporation has established a joint venture with Tobacco Road Construction, Inc., to build a toll road in North Carolina. The initial investment in paving equipment is $185 million. The equipment will be fully depreciated using the straight-line method over its economic life of five years. Earnings before interest, taxes, and depreciation collected from the toll road are projected to be $28.4 million per annum for 20 years starting from the end of the first year. The corporate tax rate is 25 percent. The required rate of return for the project under all-equity financing is 15 percent. The pretax cost of debt for the joint partnership is 8.4 percent. To encourage investment in the country's infrastructure, the U.S. government will subsidize the project with a \$115 million. 15-year loan at an interest rate of 4.9 percent per year. All principal will be repaid in one balloon payment at the end of Year 15. What is the adjusted present value of this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) Triad Corporation has established a joint venture with Tobacco Road Construction, Inc., to build a toll road in North Carolina. The initial investment in paving equipment is $81.5 million. The equipment will be fully depreciated using the straight-line method over its economic life of five years. Earnings before interest, taxes, and depreciation collected from the toll road are projected to be $12.8 million per annum for 20 years starting from the end of the first year. The corporate tax rate is 25 percent. The required rate of return for the project under all-equity financing is 14 percent. The pretax cost of debt for the joint partnership is 10 percent. To encourage investment in the country's infrastructure, the U.S. government will subsidize the project with a $26.5 million, 15-year loan at an interest rate of 6.5 percent per year. All principal will be repaid in one balloon payment at the end of Year 15. The company issued subsidized debt instead of issuing debt at the terms it normally would. Assume the face amount and maturity of the debt issue are the same. Calculate the gain or loss from subsidized debt. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) MVP, Inc., has produced rodeo supplies for over 20 years. The company currently has a debt-equity ratio of 55 percent and the tax rate is 24 percent. The required return on the firm's levered equity is 12 percent. The company is planning to expand its production capacity. The equipment to burchased is expected to generate the following unlevered cash flows: The company has arranged a debt issue of $9.6 million to partially finance the expansion. Under the loan, the company would pay interest of 9 percent at the end of each year on the outstanding balance at the beginning of the year. The company also would make year-end principal payments of $3,200,000 per year, completely retiring the issue by the end of the third year. Calculate the APV of the project. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) Bluegrass Mint Company has a debt-equity ratio of .35. The required return on the company's unlevered equity is 13.6 percent and the pretax cost of the firm's debt is 7.4 percent. Sales revenue for the company is expected to remain stable indefinitely at last year's level of $20,500,000. Variable costs amount to 70 percent of sales. The tax rate is 24 percent and the company distributes all its earnings as dividends at the end of each year. a. If the company were financed entirely by equity, how much would it be worth? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g. 1,234,567.89) b. What is the required return on the firm's levered equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c-1.Use the weighted average cost of capital method to calculate the value of the company. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g. 1,234,567.89) c. What is the value of the company's equity? (Do not round intermediate calculations 2. and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) c. What is the value of the company's debt? (Do not round intermediate calculations 3. and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) d. Use the flow to equity method to calculate the value of the company's equity. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89)