Capital structure, Corporate Finance

Assignment Help:

a)  Use excel of a financial calculator to estimate the IRR of the following business opportunity:  Initial cost of $100,000, expected pre-tax annual cash flows of $54,000 for the next 7 years, and a 20% small business tax rate.  There are no assets to depreciate but there is a yearly $25,000 pre-tax opportunity cost which recognizes the time you spend operating the business.

b)  For this type of risky investment, you would normally require at least a 16% rate of return to compensate for the business risk alone.  Assuming however that you can access a line of credit with a fixed rate of 6%, what is the minimum amount of debt capital ($$) that you would have borrow before the project becomes profitable to finance?

c)  What is the most important difference between the NPV and IRR methodologies?  Discuss briefly whether or not you feel that distinction would be important to this particular case.

 

 


Related Discussions:- Capital structure

Before tax cost of bond using IRR, David Abbot is interested in purchasing ...

David Abbot is interested in purchasing a bond issued by Sony. He has obtained the following information on the security: Par value $1000, coupon interest rate 6.0%, corporate tax

Stock index options, Explain with proof that c >= max(S - X, 0), where c is...

Explain with proof that c >= max(S - X, 0), where c is the value of the European call option, S is the price of the underlying asset and X is the strike of the option. The follo

Establishing the scale and cost of phoenix activity, Q. Establishing the sc...

Q. Establishing the scale and cost of phoenix activity? In 1996, the Australian Securities Commission (ASC, now ASIC) quantified the annual loss to Australian businesses due to

Interpret the meaning of the dol, Company X produces tea kettles, which it ...

Company X produces tea kettles, which it sells for $12 each. Fixed costs are $650,000 for up to 400,000 units of output. Variable costs are $8 per kettle. a. What is the

IRR & WACC, I have been given 3 different types of projects. They state th...

I have been given 3 different types of projects. They state the IRR and how much the project will add. The question goes on to give a WACC with break points. The question wants

Financial Engineering Assignment, Dear Sir/Madam, I have an assignment for...

Dear Sir/Madam, I have an assignment for my financial engineering class, which contains 19 different questions, and is due Monday 11 a.m. Can you please tell me if you have someon

Mergers and Acquisition, #queM&A E-III Corp. is investigating the possible ...

#queM&A E-III Corp. is investigating the possible acquisition of Silicon Inc. Assume that both firms have no debt outstanding. E-III Corp. Silicon Inc. Pre-announcement stock price

P/e ratio, P/E Ratio: When it comes to valuing stocks, the price/earnings ...

P/E Ratio: When it comes to valuing stocks, the price/earnings ratio is one of the highly oldest and most frequently used metrics. It is more than a measure of a company's past pe

Briefly the automated clearing house different participants, Problem: (...

Problem: (a) The Automated Clearing House (ACH) is an electronic payment network used by individuals, businesses, financial institutions and government organisations. (i) Ou

Calculate the present value and the duration of liabilities, Question: ...

Question: (a) In any year, the rate of interest on funds invested with a given insurance company is independent of the rates on interest in all previous years. Each year th

Write Your Message!

Captcha
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