Welcome

Anti Essays offers essay examples to help students with their essay writing.

Sign Up

Corporate Finance Essay

  • Submitted by: kmsimmi
  • on August 31, 2013
  • Category: English
  • Length: 4,632 words

Open Document

Below is an essay on "Corporate Finance" from Anti Essays, your source for research papers, essays, and term paper examples.

Question 1
Assume that a company is planning to undertake a project costing $2,000,000. This amount will be depreciated using straight line depreciation over 4 years. The project will result in increased sales of $3,500,000 a year over the next 4 years. The variable costs on increased sales will be 60% of sales and fixed costs will be $500,000 over the next 4 years. The tax rate for the company is 20%. The beta of the company is 1.40; the risk-free rate is 5% and the market risk premium is 7%. Before tax cost of debt is 9%. The company has a target capital structure of 30% debt. Assume that the company will raise the needed funds using equity and future cash flows will be discounted using the weighted average cost of capital. Calculate the unlevered beta.
Levered beta = 1.4
Debt =
Equity =
Tax rate = 20%
1.4 = b unlevered * (1+ Debt * (1-0.2)/E)

Ans: 1.04

Question 2
A project costs $100,000 and provides a cash flow of $40,000 every year for the next 4 years. The discount rate is 12%. This project can be taken up today or after one year. If it is taken up after one year, the project cost will increase by $50,000 but the project would provide cash flows of $55,000 a year for 4 years from the time project is taken up. The incremental NPV of delaying the project is:
Answer
| | ($6267) |
| | ($6145) |
| | ($5828) |
| | ($6365) |

NPV if undertaken today: 40,000 PVIFA (12%,4) – 100,000 = 21492
NPV if undertaken after one year: (55,000 PVIFA (12%,4) – 150,000)/(1.12) = 15224.55
Incremental NPV = 15224.55 – 21492 = (6267)

Question 3
Assume that a company is planning to undertake a project costing $3,000,000. This amount will be depreciated using straight line depreciation over 5 years. The project will result in increased sales of $2,500,000 a year over the next 5 years. The variable costs on increased sales will be 40% of sales and fixed costs will be $750,000 over the next 5 years. The tax rate for the company is 20%. The beta of...

Show More


Citations

MLA Citation

"Corporate Finance". Anti Essays. 11 Dec. 2018

<http://parimatchstavki7.com/free-essays/Corporate-Finance-507274.html>

APA Citation

Corporate Finance. Anti Essays. Retrieved December 11, 2018, from the World Wide Web: http://parimatchstavki7.com/free-essays/Corporate-Finance-507274.html