Financial Management: Theory & Practice
16th Edition
ISBN: 9781337909730
Author: Brigham
Publisher: Cengage
expand_more
expand_more
format_list_bulleted
Question
Chapter 21, Problem 9P
a.
Summary Introduction
To calculate: Horizon value at year 3.
Introduction: Horizon value is the
b.
Summary Introduction
To calculate:
Current unlevered value of operations
c.
Summary Introduction
To calculate:
Horizon value of tax shield at year 3
d.
Summary Introduction
To calculate:
Current value of tax shield
e.
Summary Introduction
To calculate:
Current total value
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
1LMN Corporation has projected that their performance for the next five years will result to the following (see table below).
The corporation owns a property originally acquired at P5 million with useful life of 10 years. The terminal value was assumed based on the growth rate of the cash flows. Capital investment is needed on Year 1 amounting to P1 million. Income tax rate is at 30%. The required rate of return for this business is 12%. Calculate the maximum price at which an investor will purchase 40% of LMN Corporation (round the growth rate to four decimal point).
Perez Company is considering an investment of $20,957 that provides net cash flows of $6,900 annually for four years.
(a) What is the internal rate of return of this investment? (PV of $1, FV of $1, PVA of $1, and FVA of $1)
Note: Use appropriate factor(s) from the tables provided. Round your present value factor to 4 decimals.
(b) The hurdle rate is 9%. Should the company invest in this project on the basis of internal rate of return?
Complete this question by entering your answers in the tabs below.
Required A
Required B
What is the internal rate of return of this investment?
Present value factor
Internal rate of return
%
Required A
Required B
Light company Intends to introduce a soft drink in the market in the next year. The projected revenues and expenses for the next five years are as follows:
Year 1 2 3 4
Revenues 300M 200M 315M 420M
Expenses 160M 50M 115M 200M
The initial capital outlay is 500M which will be depreciated over the four-year period. The prevailing tax rate is 30%. What is the Accounting Rate of Return (ARR)?
Select one:
A. 14.7%
B.21%
C.25.5%
D.None of the above
Chapter 21 Solutions
Financial Management: Theory & Practice
Ch. 21 - Prob. 1QCh. 21 - Modigliani and Miller assumed that firms do not...Ch. 21 -
An unlevered firm has a value of $500 million. An...Ch. 21 -
An unlevered firm has a value of $500 million. An...Ch. 21 - Prob. 3PCh. 21 - Prob. 4PCh. 21 - A company’s most recent free cash flow to equity...Ch. 21 - Air Tampa has just been incorporated, and its...Ch. 21 - Companies U and L are identical in every respect...Ch. 21 - Schwarzentraub Corporation’s expected free cash...
Knowledge Booster
Similar questions
- The Berndt Corporation expects to have sales of 12 million. Costs other than depreciation are expected to be 75% of sales, and depreciation is expected to be 1.5 million. All sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. Berndts federal-plus-state tax rate is 40%. Berndt has no debt. a. Set up an income statement. What is Berndts expected net income? Its expected net cash flow? b. Suppose Congress changed the tax laws so that Berndts depreciation expenses doubled. No changes in operations occurred. What would happen to reported profit and to net cash flow? c. Now suppose that Congress changed the tax laws such that, instead of doubling Berndts depreciation, it was reduced by 50%. How would profit and net cash flow be affected? d. If this were your company, would you prefer Congress to cause your depreciation expense to be doubled or halved? Why?arrow_forwardPerez Company is considering an investment of $26,945 that provides net cash flows of $8,500 annually for four years.(a) What is the internal rate of return of this investment? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your present value factor to 4 decimals.)(b) The hurdle rate is 7%. Should the company invest in this project on the basis of internal rate of return?arrow_forwardA company forecasts free cash flow of $400 at Year 1 and $600at Year 2; after Year 2, the FCF grow at a constant rate of 5%.The company forecasts the tax savings from interest deductionsas $200 in Year 1, $100 in Year 2; after Year 2, the tax savingsgrow at a constant rate of 5%. The unlevered cost of equityis 9%. What is the horizon value of operations at Year 2?($15,750.0) What is the current unlevered value of operations?($14,128.4) What is the horizon value of the tax shield at Year 2?($2,625.0) What is the current value of the tax shield? ($2,477.1)What is the levered value of operations at Year 0? ($16,605.5)arrow_forward
- Pena Company is considering an investment of $27,215 that provides net cash flows of $8,400 annually for four years.(a) If Pena Company requires a 8% return on its investments, what is the net present value of this investment? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your present value factor to 4 decimals.)(b) Based on net present value, should Pena Company make this investment?arrow_forwardPerez Company is considering an investment of $30,485 that provides net cash flows of $9,000 annually for four years. (a) What is the internal rate of return of this investment? b) The hurdle rate is 6%. Should the company invest in this project on the basis of internal rate of return?arrow_forwardPena Company is considering an investment of $21,705 that provides net cash flows of $6,700 annually for four years. (a) If Pena Company requires a 7% return on its investments, what is the net present value of this investment? (PV of $1. FV of $1. PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your present value factor to 4 decimals.) (b) Based on net present value, should Pena Company make this investment? Complete this question by entering your answers in the tabs below. Required A Required B What is the net present value of this investment? Years 1-4 Initial investment Net present value Net Cash Flows 6,700 x PV Factor Required A Present Value of Net Cash Flows 0 21,705 Required B >arrow_forward
- ABC Company is evaluating a project that can generate the following revenues: P4,600 in year one, P5,200 in year two, P5,900 in year three and lastly P5,700 in year four. The company has a required rate of return for 12% compounded semi-annually. 1.What will be the future values of these cash flows at the end of year four? 2.What will be the future value of 5700 at the end of 4 years? 3.What will be the future value of 4600 at the end of 4 years? 4.What will be the future value of 5200 at the end of 4 years? 5.What will be the future value of 5900 at the end of 4 years?arrow_forwardPena Company is considering an investment of $30,455 that provides net cash flows of $9,400 annually for four years. (a) If Pena Company requires a 7% return on its investments, what is the net present value of this investment? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your present value factor to 4 decimals.) (b) Based on net present value, should Pena Company make this investment? Complete this question by entering your answers in the tabs below. Required A Required B What is the net present value of this investment? Years 1-4 Net present value Net Cash Flows X PV Factorarrow_forwardPena Company is considering an investment of $30,485 that provides net cash flows of $9,000 annually for four years. (a) If Pena Company requires a 6% return on its investments, what is the net present value of this investment? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your present value factor to 4 decimals.) (b) Based on net present value, should Pena Company make this investment? Complete this question by entering your answers in the tabs below. Required A What is the net present value of this investment? Years 1-4 Required B Net present value Net Cash Flows X PV Factor Present Value of Net Cash Flows S 0 Required B >arrow_forward
- Perez Company is considering an investment of $30,485 that provides net cash flows of $9,000 annually for four years. (a) What is the internal rate of return of this investment? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your present value factor to 4 decimals.) (b) The hurdle rate is 6%. Should the company invest in this project on the basis of internal rate of return? See photo for additional informationarrow_forwardKonerko, Inc., manageent expects the company to earn cash flows of $13,227, $15,611, $18,970, and $19, 114 over the next four years. If the company uses an 8 percent discount rate, what is the future value of these cash flows at the end of year 4?arrow_forwardPerez Company is considering an investment of $21,555 that provides net cash flows of $6,800 annually for four years. (a) What is the internal rate of return of this investment? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your present value factor to 4 decimals.) (b) The hurdle rate is 8%. Should the company invest in this project on the basis of internal rate of return? Complete this question by entering your answers in the tabs below. Required A Required B What is the internal rate of return of this investment? Present value factor Internal rate of return %arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning