User Account

All Pages

Calculate the cost of debt

Assignment Help Accounting Basics
Reference no: EM133165578

Question - Sunny Inc. is trying to decide whether investing in Project A is a good idea. This project will last 5 years and will not exist after that. Any salvage value will be considered as additional cash flow to be added to the 5th year's free cash flow. The project requires a $1,000,000 initial investment (today) and has the following projected free cash flows. The project is expected to have a salvage value of $200,000 (at the end of 5th year)

Year 1:?? $300,000

Year 2:?? $350,000

Year 3: ??Nothing

Year 4: ??$450,000

Year 5: ??$250,000

Sunny Inc provides the additional information:

D/E ratio: 0.7

Tax Rate: 20%

Most recent bond with a face value of $1000 sold for $950. This bond pays yearly coupon payments and the coupon rate is 6%. The bond has a remaining maturity of 15 years.

The beta for Sunny Inc. is 2. The S&P 500 has an expected return of 12% and the t-bill is 3%.

Required -

Q1) Please calculate the Cost of Debt (not taking taxes into consideration).

Q2) Please calculate Cost of Equity (using the CAPM method).

Q3) Please calculate WACC.

Q4) Please calculate NPV (remember to include the salvage value as part of the 5th year's cash flow).

Q5) Please calculate IRR.

Q6) Is this a good investment for Sunny Inc.? Why or why not?

Reference no: EM133165578

Questions Cloud

Leadership values and behaviors of culture : Publicly elected officials often display the leadership values and behaviors of their culture. Select two prominent elected world leaders from the list below an
Find the actual direct labor rate per hour for february : Standard direct labor hours for units manufactured (SQ) 35,000. Find the actual direct labor rate per hour (AP) for February
Performance with environmental and employee stakeholders : 1. Asses the company's strategy and performance with environmental and employee stakeholders.
Assignment on erp failures : The decision to implement an ERP system is a high risk/high reward project that corporate executives sometimes embark on without considering the risk and enormi
Calculate the cost of debt : Most recent bond with a face value of $1000 sold for $950. This bond pays yearly coupon payments and the coupon rate is 6%. Calculate the Cost of Debt
Why do you need ethics training : Throughout your research on the Committee for Dynamic Success, you and your fellow colleagues identified that one of the most important ways to establish an eth
Financial crises in the post-bretton woods era : 1) Discussion on advantages, disadvantages and the contribution of Foreign exchange rates (FOREX) and Foreign Direct Investment (FDI) to Malaysia, home and host
Advertising self-regulatory council : Discuss the role the Advertising Self-Regulatory Council plays in the self-regulation of advertising.
Service Marketing : Think about a good or bad service experience that you have had. Briefly describe the experience.

Reviews

Write a Review

Accounting Basics Questions & Answers

  What is the saving in materials usage cost

Drayton Company manufactures equipment used by construction companies. It currently produces a product with 30 parts, but redesign has reduced the number of parts to 9.

  Advise tom of the australian taxation issues

Advise Tom of the Australian taxation issues arising from the above fact situation. Reference should be made to appropriate legislation, case law and rulings

  Automated processes of ais

Help to develop flowcharts to show the flow of data into and from each of the four accounting systems analyzed. Explain the rationale and analysis behind the recommended course of action.

  How much must be contributed each year by ricky fowler

Ricky Fowler borrowed $70,000 on March. How much must be contributed each year by Ricky Fowler to provide a fund sufficient to retire the debt on March 1, 2025?

  Find what is amount of raw materials used during the year

If Nestle purchased 13,860 (in millions of Swiss francs) of raw materials during the year, what is the amount of raw materials it used during the year?

  Prepare a bank reconciliation statement

Bank statement shows $10 bank fees and $5 interest on overdraft were charged on 30 June. Prepare a bank reconciliation statement

  Calculating taxable income related to the machines for 2011

Tan Company acquires a new machine (ten-year property) on January 15, 2011, at a cost of $200,000. Tan also acquires another new machine (seven-year property) on November 5, 2011, at a cost of $40,000.

  Prepare in good form journal entry to record transactions

Prepare in good form the journal entry to record each of the following transactions on the books of ABC

  Compute the break-even point in total sales dollars

A cost behavior analysis indicates that 75% of the cost of goods sold are variable, Compute the break-even point in total sales dollars and in units for 2017

  Exponential means-singly censored

Exponential means-singly censored. Suppose that one observes the first rk order statistics of a sample of size n , from an exponential distribution with mean θk = 1,. . . , K . where the samples are statistically independent.

  How much goodwill should Parma recognize

If there is a greater than 50 percent chance that the subsidiary will be able to utilize the NOL carryforward, how much goodwill should Parma recognize

  Determine what is the FV

Solve for FV: If N = 35; PV = -10000; PMT = -1000; I = 8%; what is the FV? Solve for PMT: If N = 72; PV = 30000; FV = 0; I = .5%; what is PMT?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd