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.

Suppose the FTE approach is used to evaluate the project for the next 3 questions.

How much is the levered cash flow?

$42,250

$48,000

$55,236

$64,203

$70,520

1 points

QUESTION 81

1. 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

1. What is the Initial Net Equity Investment?

$200,000

$225,500

$250,500

$275,500

$305,615