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Zoso is a rental car company that is trying to determine whether to add 25 cars to its fleet. The company fully depreciates all its rental cars over four years using the straight-line method. The new cars are expected to generate $150,000 per year in earnings before taxes and depreciation for four years. The company is entirely financed by equity and has a 35 percent tax rate. The required return on the company’s unlevered equity is 14 percent, and the new fleet will not change the risk of the company. The risk-free rate is 5 percent.
a. What is the maximum price that the company should be willing to pay for the new fleet of cars if it remains an all-equity company? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Maximum price $
b. Suppose the company can purchase the fleet of cars for $365,000. Additionally, assume the company can issue $295,000 of four-year debt at the risk-free rate of 5 percent to finance the project. All principal will be repaid in one balloon payment at the end of the fourth year. What is the adjusted present value (APV) of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Fairfax Paint just borrowed 61,900 dollars. The terms of the loan require the company to make equal semi-annual payments forever. The first semi-annual payment is due in 6 months. If the regular semi-annual loan payment is 4,650 dollars, then what is..
Firms R and S are similar firms in the same industry. Firms R and S have the same profit margin and total asset turnover when compared. However, Firm R's capital structure is 60% debt, 40% equity, and Firm S's capital structure is 30% debt, 70% equit..
Acme Inc had a total assets turnover of 1.39, an equity multiplier of 1.75, and net income of $11,000 on $295,000 of sales. Calculate the return on equity:
Our home construction company buys nails in 15-pound boxes. We use an average of 2215 boxes a year. The vendor that makes the nails can produce 33 boxes per day while our usage is 8 boxes per day. It costs $1.60 to place the typical order. Annual car..
What will be its optimal cash return point?
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Harrison Corporation is interested in acquiring Van Buren Corporation. Assume that the risk-free rate of interest is 3% and the market risk premium is 6%. What is the per-share value of Van Buren to Harrison Corporation?
What rate of depreciation or appreciation of the USexist against the AUSexist must investors be anticipating over the next year,
The cost of capital is 7.81 percent and the interest rate on the loan would be 2 percent. What is the net present value of the project?
The Valhalla Corporation needs to raise $67 million to finance its expansion into new markets. how many shares need to be sold?
Jeremy Denham plans to save $5,700 every year for the next eight years, starting today. At the end of eight years, Jeremy will turn 30 years old and plans to use his savings toward the down payment on a house. If his investment in a mutual fund will ..
CalJuice Company has decided to introduce three fruit juices made from blending two or more concentrates. These juices will be packaged in 2-qt (64-oz) cartons. One carton of pineapple-orange juice requires 8 oz each of pineapple and orange juice con..
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