Reference no: EM13915452
You are thinking of starting a firm that manufactures electronic medical devices. The required capital investment in plant and equipment is $20,000,000.00. After your manufacturing facility is completed, the firm will generate an average return on investment before interest and taxes of 15 percent each year. However, the earnings before interest and taxes is risky and will vary from year to year depending upon economic conditions in the medical equipment industry. For present value calculations, assume that the EBIT is realized at the end of each year starting with the first cash flow being received at the end of t =0 (i.e., at t = 1). The risk-free rate is .035. The stakeholders of the firm have personal tax rates TS = TB = .15. The corporate tax rate is .28. You have looked at other electronic medical device manufactures that have similar products and assets. MedEDev Inc, in particular, is very similar to your proposed firm. Below is the data on MedEDev Inc.
Value of Debt: $20,000,000
Value of Equity: $10,000,000
Shareholders personal tax rates:
Dividend and Capital Gains Rate: .15
Interest Income: .15
Corporate Tax Rate: .28
Expected Return on Equity: .12
Yield on Debt: .065
Expected Return on the Market: .20
If you fund your firm by issuing only equity, what is a good estimate of the required rate of return on the firm’s equity in the unlevered firm?
What will be the value of your unlevered firm?
If you fund your firm solely with equity, should you go forward with your idea? Why or why not?
|
Determine the cost recovery deduction
: Red Company purchased an apartment building on November 1, 2015, for $7,000,000. Determine the cost recovery deduction for 2015. Pink Corporation purchased a business asset (seven-year property) on October 18, 2015, at a cost of $30,000. This is the ..
|
|
Financing section
: What amount should be included in the financing section of the 2010 statement of cash flows for dividends paid
|
|
Format income statement at break-even point
: Complete the contribution format income statement at break-even point for the company showing the appropriate levels of sales for the two products. (Do not round intermediate calculations. Round your final answers to the nearest dollar amount.)
|
|
Amount of the recorded gain or loss from retiring the bonds
: On January 1, 2013, Shay issues $380,000 of 9%, 15-year bonds at a price of 97.25. Six years later, on January 1, 2019, Shay retires 30% of these bonds by buying them on the open market at 105.25. What is the amount of the recorded gain or loss from ..
|
|
Required rate of return on firms equity in unlevered firm
: You are thinking of starting a firm that manufactures electronic medical devices. The required capital investment in plant and equipment is $20,000,000.00. If you fund your firm by issuing only equity, what is a good estimate of the required rate of ..
|
|
Mastery get the opportunity to be workmanship
: In the Writing Life, acording to DIllard, what isolates Rahm from irrelevant gifted pilots and makes him a specialist and when does mastery get the opportunity to be workmanship?
|
|
The discount rate is referred
: The discount rate is referred to by all of the following alternative names except the.
|
|
Earnings before interest
: What are earnings before interest and taxes-Earnings before interest and taxes
|
|
Synergies required for the firm to earn its cost of capital
: Assuming the stand-alone valuation in Table 9.10 is accurate, what is the implied present value of Microsoft's anticipated synergies required for the firm to earn its cost of capital?
|