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I need help on this question B) Bathtub Gin Holdings, Inc. is contemplating a vast corporate infrastructural investment of S1,600,000, with an estimated economic life
I need help on this question
B) Bathtub Gin Holdings, Inc. is contemplating a vast corporate infrastructural investment of S1,600,000, with an estimated economic life of 10 years. It is intended to save the company S465,000, over the course of each year, in pre-tax cash operating expenses. Again, the company's tax rate is 30% and the investment's depreciation is estimated to be computed ratably over the ten years to a planned zero salvage value. There is no intention to proceed further than the initial ten year investment horizon. 1) Should the investment be undertaken and please defend your conclusions. 2) Also please supply Bathtub Gin with a sense of the investment's "performance" return. 3) How much "wiggle room" does Bathtub Gin have in its estimated pre-tax savings before the deal is not viable? Note: The selected data such as TBond rates; corporate tax rates; the long-term debt rates, market returns and equity risk-premium, are not precisely time sensitive to the dates noted in the exercise, but are depicted, only for purposes of the exercise. B) Bathtub Gin Holdings, Inc. is contemplating a vast corporate infrastructural investment of S1,600,000, with an estimated economic life of 10 years. It is intended to save the company S465,000, over the course of each year, in pre-tax cash operating expenses. Again, the company's tax rate is 30% and the investment's depreciation is estimated to be computed ratably over the ten years to a planned zero salvage value. There is no intention to proceed further than the initial ten year investment horizon. 1) Should the investment be undertaken and please defend your conclusions. 2) Also please supply Bathtub Gin with a sense of the investment's "performance" return. 3) How much "wiggle room" does Bathtub Gin have in its estimated pre-tax savings before the deal is not viable? Note: The selected data such as TBond rates; corporate tax rates; the long-term debt rates, market returns and equity risk-premium, are not precisely time sensitive to the dates noted in the exercise, but are depicted, only for purposes of the exerciseStep by Step Solution
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