Reference no: EM132999169

-A company is considering a project with an initial cost of $20,000. The project will produce a cash inflows of $10,000 at the end of the first year and $5,000 at the end of each of the following three years. The firm has a pretax cost of debt of 6% and a cost of levered equity of 10%. The debt-equity ratio is 0.22 and the tax rate is 20%. The project has the same risk as the firm. What is the net present value of the project?

-A company is planning to issue perpetual, callable bonds with a coupon rate of 7% paid annually, and a par value of $1,000. The nominal interest rate on these bonds will be 9% for the next year. In one year, the nominal rate on the bonds will be either 10% with probability 0.6, or 8% with probability 0.4. The bonds are callable at $1200. Assuming the bonds are called if the interest rate decreases, what is the price of the callable bond today?

-An all-equity firm expects its EBIT to be $145,000 every year in perpetuity. The firm currently has a cost of equity of 16 percent. The tax rate is 23 percent. The firm plans to borrow $180,000 at a pretax rate of 10.2 percent and use the proceeds to repurchase shares. What will the firm's cost of equity be after the recapitalization?