Question
QUESTION 76 For the next 8 questions suppose the following data. The Also Horns Corp. is planning on introducing a new line of saxophones. They
QUESTION 76
For the next 8 questions suppose the following data.
The Also Horns Corp. is planning on introducing a new line of saxophones. They expect sales to be $400,000 with total fixed and variable costs representing 70% of sales. The discounted rate of the unlevered equity is 17%, but the firm plans to raise $144,385 of the initial $450,000 investment as 9% perpetual debt. The corporate tax rate is 40% and the target debt to asset (or value) ratio is 0.3. |
In addition to the information above, suppose the APV approach is used to evaluate the project for the next 4 questions.
How much is the unlevered cash flow?
| $72,000 | |
| $84,000 | |
| $100,000 | |
| $120,000 | |
| $144,000 |
1 points
QUESTION 77
What is the NPV of the project to an all-equity firm?
| $-34,451 | |
| $-26,471 | |
| $-12,417 | |
| $25,376 | |
| $34,451 |
1 points
QUESTION 78
What is the NPV of the financing side effects (NPVF)?
| $44,334 | |
| $57,754 | |
| $62,250 | |
| $65,000 | |
| $75,250 |
1 points
QUESTION 79
What is the APV of the project?
| $12,341 | |
| $27,799 | |
| $31,283 | |
| $35,779 | |
| $45,337 |
1 points
QUESTION 80
Suppose the FTE approach is used to evaluate the project for the next 3 questions. Use the information in Problem 76,
How much is the levered cash flow?
| $42,250 | |
| $48,000 | |
| $55,236 | |
| $64,203 | |
| $70,520 |
1 points
QUESTION 81
What is the rS, discount rate for the equity of the levered firm?
| 16.25% | |
| 18.14% | |
| 19.06% | |
| 19.67% | |
| 20.20% |
1 points
QUESTION 82
What is the Initial Net Equity Investment?
| $200,000 | |
| $225,500 | |
| $250,500 | |
| $275,500 | |
| $305,615 |
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