What is the value of the firm and its components

Assignment Help Finance Basics
Reference no: EM131318451

The predicted cash flows for the All-Mine Corporation are $4,500 in a good economy, $3000 in an average economy, and $1000 in a poor economy. Each economic outcome is equally likely and the promised debt repayment is $3000. The firm is deciding whether to invest in a new project. The project would have to be financed by equity; the cost is $2000 and will return $2,500 (that is 25%) in one year The discount rate for both bonds and stock is 15% and the tax rate is zero.

(a) What is the value of the firm and its components before and after the project addition?

(b) Should the company take the project? Will it?

Reference no: EM131318451

Questions Cloud

Analyze the underlying factors that led to the cold war : Analyze the underlying factors that led to the Cold War - Identify the origin of the rivalry between the two blocs and explain the potential strengths and weaknesses of the English-speaking world versus the Soviet world in 1946.
Firm market value and book value differ : The current balance sheet shows a total common equity of 3 million dollars, the company has 125000 shares outstanding, sell at price 50 dollares per share. How much do the firm's market value and book value differ?
Why can forward rates be viewed as hedgeable rates : Why can forward rates be viewed as hedgeable rates?
Explain purpose of each component in the circuit : Using oscilloscope, graph the voltage for node 1 to 21 in the schematic - Explain each graph and explain purpose of each component in the circuit.
What is the value of the firm and its components : (a) What is the value of the firm and its components before and after the project addition? (b) Should the company take the project? Will it?
Compute the dupont return on operating assets : Briefly comment on profitability and trends indicated in profitability. Also comment on the difference in results between using the average balance sheet figures and year-end figures.
What could have been done to avoid the problem : What actually caused the conflict? Who was involved? Why did the conflict continue for months? What could have been done to avoid the problem?
What is the expected return on this stock : If you are considering a stock with a beta of 1.2, what is the expected return on this stock according to the security market line ? What is the theoretical problem inherent in verifying the CAPM empirically?
What is the all equity value of the investment : (a) What is the all equity value of the investment? (b) What is the added value if the company finances this project with $682,044 worth of 16% debt which requires an interest payment until maturity when the full principle is due?

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

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