Cash flow year three: $ 181,000 Cash flow year four: $ 121,000
a. Using a discount rate of 9 % for this project and the NPV model, determine whether the company should accept or reject this project.
b. Should the company accept or reject it using a discount rate of 14 %?
c. Should the company accept or reject it using a discount rate of 21 %?
P16-5( similar to)
Break-even EBIT( with and without taxes). Alpha Company is looking at two different capital structures, one an all-equity firm and the other a levered firm with $ 4.8 million of debt financing at 7 % interest. The all-equity firm will have a value of $ 8 million and 400,000 shares outstanding. The levered firm will have 160,000 160,000 shares outstanding.
a. Find the break-even EBIT for Alpha Company using EPS if there are no corporate taxes.
b. Find the break-even EBIT for Alpha Company using EPS if the corporate tax rate is 15 %.
c. What do you notice about these two break-even EBITs for Alpha Company?
P7-1( similar to)