Investment in net working capital

Assignment Help Finance Basics
Reference no: EM132367020

WWT is considering replacing a $5 million piece of equipment. The project will generate pretax savings of $1,500,000 per year, and not change the risk level of the firm. The initial expense will be depreciated straight-line to zero salvage value over 5 years; the pretax salvage value in year 5 will be $500,000. The firm can obtain a 5-year $3,000,000 loan at 12.5% to partially finance the project. If the project were financed with all equity, the cost of capital would be 18%. The corporate tax rate is 34%, and the risk-free rate is 4%. The project will require a $100,000 investment in net working capital. Calculate the APV.

Reference no: EM132367020

Questions Cloud

What is the company long-term debt : A company has $1,357 in inventory, $4,800 in net fixed assets, $646 in accounts receivable, $286 in cash, $602 in accounts payable, and $5,395 in equity.
Are the current conditions conducive : Are the current conditions conducive to deflation or should we still be concerned about inflation? Back up your responses with material from your text
Projects of division a : Duval Inc. uses only equity capital, and it has two equally-sized divisions. Division A's cost of capital is 10.0%, Division B's cost is 14.0%, and the corporat
Cost of unlevered equity for such a solar heater : The interest rate on the debt is 8%. Is the project worthwhile? Use APV method.
Investment in net working capital : The corporate tax rate is 34%, and the risk-free rate is 4%. The project will require a $100,000 investment in net working capital. Calculate the APV.
What is the operating cash flow : ABC Company has a proposed project that will generate sales of 444 units annually at a selling price of $291 each. The fixed costs are $6,542
Computing the project npv : The annual operating cash flow is $85,279 and the cost of capital is 5% What is the project's NPV if the tax rate is 26%?
What is the project npv if the tax rate : The annual operating cash flow is $95,257 and the cost of capital is 16% What is the project's NPV if the tax rate is 39%?
Acceptance of an offer under contract law : Explain the Uniform Commercial Codes' position on acceptance of an offer under Contract Law.

Reviews

Write a Review

Finance Basics Questions & Answers

  Preferred or a share of the common stock

Both have just paid a $4 dividend. Which do you think will have a higher price, a share of the preferred or a share of the common stock?

  What is the minimum number of years for an investment

What is the minimum number of years in which an investment costing $210,000 must return $65,000 per year at a discount rate of 13% in order to be an acceptable investment?

  What is after-tax cost of debt if it pays interest annually

FitBite, Inc. currently has an outstanding bond that pays interest annually, a coupon rate of 6%, and 5 years until maturity.

  Explaining fiscal and budgetary challenges

Help me out to explain the fiscal and budgetary challenges faced by higher education institutions?

  What is the primary objective of financial reporting

a what is the primary objective of financial reporting?b identify the characteristics of useful accounting

  Calculate the net present value

Calculate the net present value. Calculate the profitability index. Calculate the internal rate of return.

  Given the information in the following table compute the

given the information in the following table compute the days in accounts receivable aging schedule and accounts

  Determine the eoq

(EOQ calculations) A downtown bookstore is trying to determine the optimal order quantity for a popular novel just printed in paperback.

  What might account for the trends in the given ratios

Financial Statement Analysis. You are examining the common-size income statements for a company for the past five years and have noticed that the cost of goods.

  Cash cycle for improvements or problems

Choose a business and discuss the cash cycle and how it works in your view. What are the usual opportunities in the cash cycle for improvements or problems?

  Illustrate two advantages associated with fast tracking

Illustrate two advantages and two challenges associated with fast tracking and provide examples based on your own experience (not examples from the text).

  Assuming that the returns on share a and b have a

value of holdingreturn last 12 monthsstandard deviationbeta of total portfolioshare a12000124611027share

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!

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