e management of If-Not, Inc.'s target debt ratio is 40 percent. To finance the $1 million in nts, 3. Say the problem 1 th e six-year loan will carry a 10 percent rate and be repaid in equal annual installm i the annual interest payable on the unpaid balance. Isue costs are 2 and 12 percent respective l the net proceeds of the debt and equity. Using a marginal tax rate of s4 percent, trace the im of this additional twist on the project's net present value. impact 4. The Perpetual Motion Company is evaluating a $6 million plant expansion which it estima generate $750,000 in after investments of comparable risk is -tax cash, year in and year out, perpetually. The return obtainable on 13 percent. (a) Calculate the net present value of the projec ing no tax shields. (b) Calculate the project's net present value, assuming tax shields t of the project's cost. The ced by the issuance of 9 percent debt in amounts equal to 40 percen company's marginal tax rate is 34 percent. (c) Determine the minimum acceptable base-case NPV (d) Determine the minimum acceptable internal rate of return. 5. Use the MM and Miles and Ezzell formulas to determine the adjusted cost of capital in problem 5 Using the data in problem 4, calculate the weighted average cost of capital. Further assume that U.S. Treasury Bills yield 7 percent; the risk premium for all stocks is 10 percent; and the company's 6. beta is 0.90. Show all calculations. 7. Your company is considering a relocation of its outdated plant. The state offers to loan your firm the $15 million it needs to update the facilities if it agrees to stay at least five years. The loan rate is 5 percent, whereas your market rate for borrowing is 12 percent. You expect that the modernized facility will generate $600 thousand a year for the next five years. A good deal? Show why or why not? The firm's marginal tax rate is 34 percent. 8.. If you have an investment project that is expected to provided $400 thousand at the end of one year and it is financed at a subsidized 5 percent rate, demonstrate how this is an equivalent loan in that a he belor-tx opportni cou of toro1e marginal tax rate of-s percent. e management of If-Not, Inc.'s target debt ratio is 40 percent. To finance the $1 million in nts, 3. Say the problem 1 th e six-year loan will carry a 10 percent rate and be repaid in equal annual installm i the annual interest payable on the unpaid balance. Isue costs are 2 and 12 percent respective l the net proceeds of the debt and equity. Using a marginal tax rate of s4 percent, trace the im of this additional twist on the project's net present value. impact 4. The Perpetual Motion Company is evaluating a $6 million plant expansion which it estima generate $750,000 in after investments of comparable risk is -tax cash, year in and year out, perpetually. The return obtainable on 13 percent. (a) Calculate the net present value of the projec ing no tax shields. (b) Calculate the project's net present value, assuming tax shields t of the project's cost. The ced by the issuance of 9 percent debt in amounts equal to 40 percen company's marginal tax rate is 34 percent. (c) Determine the minimum acceptable base-case NPV (d) Determine the minimum acceptable internal rate of return. 5. Use the MM and Miles and Ezzell formulas to determine the adjusted cost of capital in problem 5 Using the data in problem 4, calculate the weighted average cost of capital. Further assume that U.S. Treasury Bills yield 7 percent; the risk premium for all stocks is 10 percent; and the company's 6. beta is 0.90. Show all calculations. 7. Your company is considering a relocation of its outdated plant. The state offers to loan your firm the $15 million it needs to update the facilities if it agrees to stay at least five years. The loan rate is 5 percent, whereas your market rate for borrowing is 12 percent. You expect that the modernized facility will generate $600 thousand a year for the next five years. A good deal? Show why or why not? The firm's marginal tax rate is 34 percent. 8.. If you have an investment project that is expected to provided $400 thousand at the end of one year and it is financed at a subsidized 5 percent rate, demonstrate how this is an equivalent loan in that a he belor-tx opportni cou of toro1e marginal tax rate of-s percent
