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Please answer 2 questions and 1 multiple choice question or I will downvote, thank you Kohwe Corporation plans to issue equity to raise $50.7 million
Please answer 2 questions and 1 multiple choice question or I will downvote, thank you
Kohwe Corporation plans to issue equity to raise $50.7 million to finance a new investment. After making the investment, Kohwe expects to earn free cash flows of $10.8 million each year. Kohwe currently has 5.2 million shares outstanding and it has no other assets or opportunities. Suppose the appropriate discount rate for Kohwe's future free cash flows is 8.2%, and the only capital market imperfections are corporate taxes and financial distress costs. a. What is the NPV of Kohwe's investment? b. What is Kohwe's share price today? a. What is the NPV of Kohwe's investment? The NPV of Kohwe's investment is q million. (Round to two decimal places.) b. What is Kohwe's share price today? Kohwe's share price today is $ (Round to two decimal places.) Dynron Corporation's primary business is natural gas transportation using its vast gas pipeline network. Dynron's assets currently have a market value of $157 million. The firm is exploring the possibility of raising $44 million by selling part of its pipeline network and investing the $44 million in a fibre-optic network to generate revenues by selling high-speed network bandwidth. Whereas this new investment is expected to increase profits, it will also substantially increase Dynron's risk. If Dynron is levered, would this investment be more or less attractive to equity holders than if Dynron had no debt? (Select the best choice below.) A. Less attractive: Equity holders in a levered firm will prefer that the firm reduce its risk to minimize the possibility of default. B. No difference: Leverage has no effect on how attractive the investment is. C. More attractive: Equity holders in a levered firm will benefit from an increase in the risk of the firm's investments. D. Less attractive: Having leverage will raise Dynron's equity cost of capital, making new investments less attractive. E. More attractive: The tax benefits of leverage will make the new investment more attractiveStep by Step Solution
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