Project is of similar risk to the firms existing operations

Assignment Help Financial Management

Reference no: EM131444239

Bubba's Bowling Inc. needs to purchase equipment for its 2.000 bowling alleys The total cost of the equipment is $2 million. It is estimated that the before-tax cash inflows from the project will be $328, 125 annually in perpetuity. Bubba's has a market value ratio of .6667. The firm's cost equity is 13%, its pre-tax cost of debt is 8%, the flotation costs of debt and equity are 2% and respectively. The tax rate is 36%. Assume the project is of similar risk to the firm's existing operations.

What is the WACC?

What is the NPV of the project?

Should Bubba's accept or reject the project?

Reference no: EM131444239

Questions Cloud

The gap is considering buying cash register software : The Gap is considering buying cash register software from Microsoft so that it can more effectively deal with its retail sales. The software package costs $750,000 and will be depreciated down to zero using the straight-line method over its five-year..

Calculate the macaulay duration for the bond : A $1000 par value bond with 5 years to maturity and a 6% coupon has a yield to maturity of 8%. Interest is paid semiannually. Calculate the current price of the bond. Calculate the Macaulay duration for the bond.

How much do you have to invest in nominal terms : Your current age is 22 and you plan to retire at age 67. At retirement you want to have a “nest egg” of $2 million in today’s buying power. Over that time-period you expect inflation to average 3% per year. If you can earn 4.6% APR, compounded monthl..

Alternate offering prices on the existing price per share : Brady Company has 65,000 shares of stock that each sell for $37. Suppose the company issues 8,000 shares of new stock at the following prices: $37, $23, and $16. What is the effect of each of the alternate offering prices on the existing price per sh..

Project is of similar risk to the firms existing operations : Bubba's Bowling Inc. needs to purchase equipment for its 2.000 bowling alleys The total cost of the equipment is $2 million. It is estimated that the before-tax cash inflows from the project will be $328, 125 annually in perpetuity. Assume the projec..

Calculate the portfolios expected return and risk : Use the 3-asset portfolio return/risk formula to calculate the following portfolio’s expected return and risk.

What effective rate of interest is being assumed : Imagine that you've just won the new University of Virginia MiniLottery, and have two options for the payment of your prize. The first is to receive three equal annual payments (the first coming immediately) of 7000 dollars apiece. The second is to i..

What is cruiseliners weighted average cost of capital : Cruiseliners, Inc. has 230,000 shares of common stock outstanding at a market price of $40 a share. Cruiseliners' just paid an annual dividend in the amount of $1.75 per share. The bonds carry a 9 percent coupon, pay interest semi-annually, and matur..

Retirement before the retirement savings would run out : You are setting up your IRA. You have decided that you can afford to put $640 per month (end of each month) for 22 years into the account that is paying 9.4% compounded monthly. How many years into retirement before the retirement savings would run o..

User Account

All Pages