: l AT&T 12:29 PM @ 91% Back HW-Ch 16-2018 Fall.docx 1. (8) Roberts, Inc. is trying to decide how best to finance a proposed $50 million capital investment. Under Plan I, the project will be financed entirely with long-term 8% bonds. The firm currently has no debt or preferred stock. Under Plan II, common stock will be sold to net the firm $20 a share. Presently, the firm has 5 million shares are outstanding. The corporate tax rate for Roberts is 30%. Prepare an EBIT-EPS analysis chart, showing the intersection of the two financing plan lines by calculating the indifference level of EBIT (& EPS) associated with the two financing plans. Threes Company is evaluating a new project. Mr. Jack Tripper, Chief Financial Officer, has received pro forma income statements for the project from the Controller's office and wants to know whether the new project will increase shareholders' wealth The estimated initial project cost is $25 million to undertake this six year project. The project is expected to generate the following cash flows for the next six years: $5.2 million in year 1; $6.6 million in year 2, $7.6 million in year 3; $8.7 million in year 4, $8.2 million in year 5; $9.8 million in year 6 including salvage value and recovery of working capital. The firm's tax rate is 30%. Current market interest rate on a six-year bank loan is 6%. The firm's target payback period is four years. Threes' financing policy is to actively maintain a target debt ratio (D/D+E) at 50% (or 100% debt-to-equity ratio) during the life of the project. Mr. Jack Tripper is considering issuing a 6- year bond with 6% annual coupon on the $1,000 par, payable semi-annually, for $10 million. Threes uses the CAPM in estimating shareholders' opportunity cost: the risk-free rate is 4.3%, the market risk premium is 6.5%, and the project's beta is 1.80, respectively. Threes' current dividend yield is 3% a year 2. (12) Compute: the WACC of the project. 3. (5) Compute the NPV and IRR of the project. Previous Next Dashboard Calendar To Do Notifications Inbox