Homework Help for Finance

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Finance deals with the management of money thorugh techniques and tools such as investing, borrowing, lending, budgeting, saving, and forecasting.

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yoony7848 asked for the first time
in Finance·
22 Apr 2022

A company's target debt-to-equity ratio is .6, its cost of equity is 11.8 percent, and its beta is1.2. The after-tax cost of debt is 6.4 percent, the tax rate is 34 percent, and the risk-free rate is3.2 percent. What discount rate should be assigned to a new project the firm is considering if the project's beta is estimated at 0.87?
5. A project has an internal rate of return of 11.76 percent and a beta of 1.22. The market rate of return is 9.8 percent, the tax rate is 35 percent, and the risk-free rate is 3.4 percent. Should this project be accepted according to the CAPM if the firm is all-equity financed? Why or why not?
6. A company currently has a debt-to-equity ratio of .45, its cost of equity is 13.6 percent, and its beta is 1.49. The pretax cost of debt is 7.8 percent, the tax rate is 35 percent, and the risk-free rate is 3.1 percent. The firm's target debt-to-equity ratio is 0.5. What discount rate should be assigned to a new project the firm is considering if the project is equally as risky as the overall firm and will be financed solely with debt?

4. A company has a target capital structure of 60 percent debt and 40 percent equity. The pretax cost of debt is 12.5 percent, the tax rate is 20 percent, and the cost of equity is 9.7 percent. The firm is considering a project that is equally as risky as the overall firm. The project has an initial cash outflow of $1.5 million and annual cash inflows of $350,000 at the end of each year for five years. What is the NPV of the project?

5. A company is 40% financed by risk-free debt and 60 percent equity. The treasury bill rate is 4%, the expected market rate of return is 12%, and the beta of the company’s common stock is 1.5. Tax rate is 20%. The firm is considering a project that is equally as risky as the overall firm. The project has an initial cash outflow of $2.8 million and annual cash inflows of $650,000 at the end of each year for four years. What is the NPV of the project?
6. A company has a capital structure of 35 percent debt and 65 percent equity. The pretax cost of debt is 12.0 percent, the tax rate is 34 percent, and the cost of equity is 17.5 percent. The firm is considering a project that is equally as risky as the overall firm. The project has an initial cash outflow of $2.5 million and annual cash inflows of $1.150,000 at the end of each year for three years. What is the NPV of the project?

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ashaaa asked for the first time
in Finance·
9 Apr 2022

You are an employee f University Consultants, Ltd., and have been given the following assignment. You are to present an investment of a new small residential income-producing property for sale to a potential Investor. The asking price for the property is $1,250,000; rents are estimated at $200,000 during the first year and are expected to grow at 3 percent per year thereafter. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A fully amortizing 70 percent loan can be obtained at 11 percent interest for 30 years (total annual payments will be monthly payments 12). The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold

Task 1: Concepts and techniques important in the analysis of real estate income property

(a) What is the first year debt coverage ratio?

(b) What is the terminal capitalization rate?

(c) What is the investor's expected before tax internal rate of return on equity invested (BTIRR)?

RRR -14-1

id) What is the NPV using a 14 percent discount rate? What does this mean? (e) What is the profitability index using a 14 percent discount rate? What does this mean?

Task 2: How taxes affect the value of real estate versus other investments

You are still an employee of University Consultants, Ltd. The investor tells you she would like to know how tax considerations affect your investment analysis. You determine that the building represents 90 percent of value and would be depreciated over 27.5 years-fuse 1/27.5 per year). The potential investor indicates that she is in the 36 percent tax bracket and has enough passive income from other activities so that any passive losses from this activity would not be subject to passive activity loss limitations Capital gains from price appreciation will be taxed at 20 percent and depreciation recapture will be taxed at 25 percent. fullered te all

(a) What is the investor's expected after-tax internal rate of return on equity invested (ATIRR)?142

(b) How does (a) above compare with the before-tax IRR (STIRR) calculated in Task 17

(c) How would you evaluate the tax benefits of this investment?

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