9. The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 35 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. ========================================================= FIN 571 Week 5 DQ 1
Because the weighted average is always a correct measure of a required return, why do firms not create securities to finance each project and offer them in the capital market in order to accurately determine the required return for the project?
b-1. What is the NPV for each project if the appropriate discount rate is 15 percent?( A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e. g., 32.16.)
b-2. Which, if either, of these projects should be chosen if the appropriate discount rate is 15 percent?
8. Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $ 2.82 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which it will be worthless. The project is estimated to generate $ 2,120,000 in annual sales, with costs of $ 815,000. The tax rate is 30 percent and the required return is 12 percent.
What is the project’ s NPV?( Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.)
9. The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 35 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. ========================================================= FIN 571 Week 5 DQ 1
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Because the weighted average is always a correct measure of a required return, why do firms not create securities to finance each project and offer them in the capital market in order to accurately determine the required return for the project?