Question
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
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.
QUESTION 80
1. 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
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
1 points
QUESTION 83
1. For the next question suppose the WACC approach is used to evaluate the project.
Use the information in Problem 76,
What is the rWACC of the project?
12.48%
13.33%
14.96%
15.23%
18.34%
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started