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Capital Budgeting and Valuation with Leverage

18-4. Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of $1.5 million per year, growing at a rate of 2.5% per year. Goodyear has an equity cost of capital of 8.5%, a debt cost of capital of 7%, a marginal corporate tax rate of 35%, and a debt-equity ratio of 2.6. If the plant has average risk and Goodyear plans to maintain a constant debt-equity ratio, what after-tax amount must it receive for the plant for the divestiture to be profitable?

We can compute the levered value of the plant using the WACC method. Goodyear’s WACC is

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Therefore, [pic]

A divestiture would be profitable if Goodyear received more than $47.6 million after tax.

18-5. Suppose Alcatel-Lucent has an equity cost of capital of 10%, market capitalization of $10.8 billion, and an enterprise value of $14.4 billion. Suppose Alcatel-Lucent’s debt cost of capital is 6.1% and its marginal tax rate is 35%.

a. What is Alcatel-Lucent’s WACC?

b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the following expected free cash flows?

[pic]

c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part b?

a. [pic]

b. Using the WACC method, the levered value of the project at date 0 is

[pic]

Given a cost of 100 to initiate, the project’s NPV is 185.86 – 100 = 85.86.

c. Alcatel-Lucent’s debt-to-value ratio is d = (14.4 – 10.8) / 14.4 = 0.25. The project’s debt capacity is equal to d times the levered value of its remaining cash flows at each date.

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Chapter 29

Corporate Governance

29-1. What inherent…...

...Week 1 Homework Fin 515 Mini Case a. Why is corporate finance important to all managers? To help Identify and select the corporate strategies and individual projects that adds value to their firm b. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form. Sole Proprietor- The sole proprietor of the business can be held personally liable for the debts and obligations of the business. The risk extends to any liabilities incurred as a result of acts committed by employees of the company. A sole-proprietorship is owned by a single individual who is responsible for the long-term decisions, goals of the company and significant tax advantages. Partnership- partnership is that you don't have to register with your state and pay an often high fee, as you do to establish a corporation or limited liability company. A benefit of a partnership is that it is treated as a pass-through entity. The partnerships are allowed to pass, or file, their share of company profits and losses directly on their personal income tax return. A major disadvantage of doing business as a partnership is that all partners are liable for debts and liabilities. Corporation- the Corporation is a stand-alone entity, which means you are not liable for the assets and debts of the business. Also, the stand-alone entity also separates tax liabilities, which is another advantage. A disadvantage of a......

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...Week 5 - Project Jonathan Chapman jwchapman12@gmail.com October 2, 2014 Managerial Finance FIN-515-10284 DeVry University Keller Graduate School of Management Professor Hartzog Week 5 – Project 8-23 - Bauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to build a plant that will manufacture lightweight trucks. Bauer plans to use a cost of capital of 12% to evaluate this project. Based on extensive research, it has prepared the following incremental free cash flow projections (in millions of dollars): | Year 0 | Years 1-9 | Year 10 | Revenues | | 100.0 | 100.0 | -Manufacturing expenses(other than depreciation) | | -35.0 | -35.0 | -Marketing expenses | | -10.0 | -10.0 | -Depreciation | | -15.0 | -15.0 | =EBIT | | 40.0 | 40.0 | -Taxes (35%) | | -14.0 | -14.0 | =Unlevered net income | | 26.0 | 26.0 | +Depreciation | | +15.0 | +15.0 | -Increases in net worth capital | | -5.0 | -5.0 | -Capital expenditures | -150.0 | | | +Continuation value | | | +12.0 | =Free cash flow | -150.0 | 36.0 | 48.0 | a. For this base-case scenario, what is the NPV of the plant to manufacture lightweight trucks? NPV=150 + 36 x 1/0.12[1-1/1.12^9] + 48/1.12^10 = $57.3 million b. Based on input from the marketing department, Bauer is uncertain about its revenue forecast. In particular, management would like to examine the sensitivity of the NPV to the revenue assumptions.......

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...FIN 515 Midterm Exam FIN 515 Midterm Exam Devry - Midterm Exam http://workbank247.com/q/fin-515-midterm-exam-fin-515-midterm-exam/11200 http://workbank247.com/q/fin-515-midterm-exam-fin-515-midterm-exam/11200 CLICK below link for Answer 2015 FIN515 MANAGERIAL FINANCE MIDTERM (NOV-DEC) 1. Question : (TCO G) The firm's equity multiplier measures Question 2. Question : (TCO G) The DuPont Identity expresses the firm's ROE in terms of Question 3. Question : (TCO B) A certain investment will pay $10,000 in 20 years. If the annual return on comparable investments is 8%, what is this investment currently worth? Show your work. Question 4. Question : (TCO B) You take out a 5 year car loan for $20,000. The loan has a 5% annual interest rate. The payments are made monthly. What are the monthly payments? Show your work. Question 5. Question : (TCO B) Someone leases a car with the following terms: monthly payment, five year term, 5% annual interest rate, initial value of the lease is $35,000, and value at the end of the lease is $10,000. What are the monthly payments? Show your work. Question 6. Question : (TCO B) An accident victim has received a structured settlement. According to the terms of the agreement, the victim will receive $10,000 per year at the end of each year for the next 15 years. Additionally, the victim will receive $20,000 in 10 years. The victim believes they could get 7% annually on an investment they could make if they had all the money now. What would......

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...A++PAPER;http://www.homeworkproviders.com/shop/fin-515-week-4/ FIN 515 WEEK 4 FIN 515 WEEK 4, Fin 515 Week 4 Weekly Problems and Midterm Exam Prob 7-2 – Prob 7-4 – Prob 7-5 –Prob 9-2 –Prob 9-4 – Prob 9-4 – Prob 9-5 – Prob 9-6 – Prob 9-7 FIN 515 Week 4 : Business Valuation and Stock Valuation - Exam 1. (TCO A) Which of the following statements is CORRECT? (Points : 10) 2. (TCO G) Which of the following statements is CORRECT? (Points : 10) 3. (TCO G) LeCompte Corp. has $312,900 of assets, and it uses only common equity capital (zero debt). Its sales for the last year were $620,000, and its net income after taxes was $24,655. Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15%. What profit margin would LeCompte need in order to achieve the 15% ROE, holding everything else constant? (Points : 10) 4. (TCO B) You want to buy a new sports car three years from now, and you plan to save $4,200 per year, beginning one year from today. You will deposit your savings in an account that pays 5.2% interest. How much will you have just after you make the third deposit, three years from now? (Points : 10) 5. (TCO B) You sold a car and accepted a note with the following cash flow stream as your payment. What was the effective price you received for the car assuming an interest rate of 6.0%? Years: 0 1 2 3 4 |-----------|--------------|--------------|--------------| CFs: $0 $1,000 $2,000 $2...

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...FIN 515 Midterm Exam Answers http://hwguiders.com/downloads/fin-515-midterm-exam-answers FIN 515 Midterm Exam Answers Question 1. (TCO G) The firm’s asset turnover measures: Question 2. (TCO G) If Moon Corporation has an increase in sales, which of the following would result in no change in its EBIT margin? Question 3. (TCO B) You plan on retiring in 20 years. You currently have $275,000 and think you will need $1,000,000 to retire. Assuming you don’t deposit any additional money into the account, what annual return will you need to earn to meet this goal? Question 4. (TCO B) You take out a 4 year car loan for $18,000. The loan has a 4% annual interest rate. The payments are made monthly. What are the monthly payments? Show your work. Question 5. (TCO B) You currently have $10,000 in your retirement account. If you deposit $500 per month and the account pays 5% interest, how much will be in the account in 10 years? Show your work. Question 6. (TCO B) You have a two children, A and B. Child A is not going to college but is working in a business to learn the ropes. Child A plans on opening a business someday. Child B is attending college. You put a certain amount of money into an account. From this account, Child B will receive $2,000 per month for the next four years. Whatever is left at that time will go to Child A to help start the business. You want Child A to receive $96,000 at that time. The account pays 7% annually, compounded monthly. How much money do you......

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...FIN 515 Midterm Exam Solution http://www.homework-bank.com/downloads/fin-515-midterm-exam-solution/ FIN 515 Midterm Exam Solution Question 1. (TCO G) The firm's asset turnover measures: Question 2. (TCO G) If Moon Corporation has an increase in sales, which of the following would result in no change in its EBIT margin? Question 3. (TCO B) You plan on retiring in 20 years. You currently have $275,000 and think you will need $1,000,000 to retire. Assuming you don’t deposit any additional money into the account, what annual return will you need to earn to meet this goal? Question 4. (TCO B) You take out a 4 year car loan for $18,000. The loan has a 4% annual interest rate. The payments are made monthly. What are the monthly payments? Show your work. Question 5. (TCO B) You currently have $10,000 in your retirement account. If you deposit $500 per month and the account pays 5% interest, how much will be in the account in 10 years? Show your work. Question 6. (TCO B) You have a two children, A and B. Child A is not going to college but is working in a business to learn the ropes. Child A plans on opening a business someday. Child B is attending college. You put a certain amount of money into an account. From this account, Child B will receive $2,000 per month for the next four years. Whatever is left at that time will go to Child A to help start the business. You want Child A to receive $96,000 at that time. The account pays 7%......

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...FIN 515 UOP, FIN 515 Phoenix, FIN 515 UOPhelp, FIN 515 Week 3, FIN 515 Individual Assignment , FIN 515 Learning team Assignment, FIN 515 Product, FIN 515 A Graded , FIN 515 Summary, FIN 515 Study Guide, FIN 515 Questions , FIN 515 Answered , FIN 515 Solution, FIN 515 Final Guide, FIN 515 Final Exam, FIN 515 A++ Work, FIN 515 A Graded, FIN 515 Homework, FIN 515 help, FIN 515 week 1 DQ, FIN 515 week 2 DQ, FIN 515 week 3DQ, FIN 515 week 4 DQ, FIN 515 week 5DQ, FIN 515 week 6 DQ, FIN 515 week 1 Assignment, FIN 515 week 2 Assignment, FIN 515 week 3Assignment, FIN 515 week 4 Assignment, FIN 515 week 5 Assignment, FIN 515 All Individual and Learning Team Assignments, FIN 515 Full Course , FIN 515 Whole Class FIN 515 Entire Solution, FIN 515 University of Phoenix Learning Team Assignment, FIN 515 Checkpoint, FIN 515 All Weeks , FIN 515 Week 1-5, FIN 515 Axia College, FIN 515 online class, FIN 515 week 3DQ, FIN 515 week 4 DQ, FIN 515 week 5DQ, FIN 515 Syllabus, FIN 515 Version, FIN 515 Week 1, FIN 515 Week 2, FIN 515 Week 3, FIN 515 Week 4, FIN 515 Week 5, FIN 515 week 1 DQ, FIN 515 week 2 DQ,, FIN 515 week 2 Assignment, FIN 515 week 3Assignment, FIN 515 week 4 Assignment, FIN 515 Week 1-6, FIN 515 Assignment, FIN 515 DQs, FIN 515 Week, FIN 515 Complete Course, FIN 515 Entire Class, FIN 515 Whole Tutorial, FIN 515 Work, FIN 515 final Project, FIN 515 Material, FIN 515 tutorial, FIN 515 Complete......

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...FIN 515 WEEK 4 A+ Graded Tutorial Available At: http://hwsoloutions.com/?product=fin-515-week-4 Visit Our website: http://hwsoloutions.com/ Product Description PRODUCT DESCRIPTION FIN 515 WEEK 4, Fin 515 Week 4 Weekly Problems and Midterm Exam Prob 7-2 – Prob 7-4 – Prob 7-5 –Prob 9-2 –Prob 9-4 – Prob 9-4 – Prob 9-5 – Prob 9-6 – Prob 9-7 FIN 515 Week 4 : Business Valuation and Stock Valuation – Exam 1. (TCO A) Which of the following statements is CORRECT? (Points : 10) 2. (TCO G) Which of the following statements is CORRECT? (Points : 10) 3. (TCO G) LeCompte Corp. has $312,900 of assets, and it uses only common equity capital (zero debt). Its sales for the last year were $620,000, and its net income after taxes was $24,655. Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15%. What profit margin would LeCompte need in order to achieve the 15% ROE, holding everything else constant? (Points : 10) 4. (TCO B) You want to buy a new sports car three years from now, and you plan to save $4,200 per year, beginning one year from today. You will deposit your savings in an account that pays 5.2% interest. How much will you have just after you make the third deposit, three years from now? (Points : 10) 5. (TCO B) You sold a car and accepted a note with the following cash flow stream as your payment. What was the effective price you received for the car assuming an interest rate of 6.0%? Years: 0......

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...FIN 515 FULL COURSE PROJECT To purchase this visit following link: http://www.activitymode.com/product/fin-515-full-course-project/ Contact us at: SUPPORT@ACTIVITYMODE.COM FIN 515 FULL COURSE PROJECT FIN 515 Full Course Project Week 5 – ProjectComplete the Problem 11-7 “New-Project Analysis” (p. 460) and detail your work in the answer to each question in a Word document named “FIN515_W5_Project_yourname.” The project is graded and worth 35 points. Submit your assignment to the Dropbox located on the silver tab at the top of this page. For instructions on how to use theDropbox, read these Step-by-Step Instructions or watch this Dropbox Tutorial. See Syllabus/”Due Dates for Assignments & Exams” for due date information. Week 7 – Project Complete the Problem 13-10 Corporate Valuation on pages 551-552 in a Word document named “FIN515_W7_Project_yourname”. Show the details of your calculation/work in your answer to the Problem. Submit your project to the Dropbox located on the silver tab at the top of this page. For instructions on how to use theDropbox, read these Step-by-Step Instructions or watch this Dropbox Tutorial. See Syllabus/”Due Dates for Assignments & Exams” for due date information. Activity mode aims to provide quality study notes and tutorials to the students of FIN 515 Full Course Project in order to ace their studies. FIN 515 FULL COURSE PROJECT To purchase this visit following......

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...FIN 515 Entire Courses (DEVRY) For more course tutorials visit www.tutorialrank.com Tutorial Purchased: 4 Times, Rating: A+ FIN 515 Week 1-7 All Discussion Questions (DEVRY) FIN 515 Week 1 Homework assignments (DEVRY) FIN 515 Week 2 Homework Assignment (DEVRY) FIN 515 Week 3 Homework Assignment (DEVRY) FIN 515 Week 4 Homework Assignment (DEVRY) FIN 515 Week 4 Midterm Exam (DEVRY) FIN 515 Week 5 Homework Assignment (DEVRY) FIN 515 Week 5 Project (DEVRY) FIN 515 Week 6 Homework Assignment (DEVRY) FIN 515 Week 7 Homework Assignment (DEVRY) FIN 515 Week 7 Project (DEVRY) FIN 515All Homework Assignments, DQs Midterm and Final Exam (DEVRY) -------------------------------------------------- FIN 515 Week 1 Homework assignments (DEVRY) For more course tutorials visit www.tutorialrank.com Tutorial Purchased: 2 Times, Rating: A+ Complete the following graded homework assignment in a Word document named “FIN 515_Homework1_yourname." Show the details of your calculations/work in your answer to the problems. • Mini Case (p. 45) • Problems (p. 79) o 2-6 Statement of Retained Earnings o 2-7 Corporate Tax Liability (calculate tax liability and AT income) o 2-9 Corporate After-Tax Yield (muni, corp, PS) -------------------------------------------------- FIN 515 Week 1-7 All Discussion Questions (DEVRY) For more course tutorials visit www.tutorialrank.com Tutorial Purchased: 1 Times, Rating: A+ Week 1 DQ 1 Capital Formation Week......

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...FIN 515 Entire Course For more classes visit www.snaptutorial.com Week 1 Homework Problems and Mini Case Week 2 Homework Assignment; Problems Week 3 Homework Assignment; Problems Week 3 Homework Problems; 5-1, 5-2, 5-6 Week 4 Homework Problems page 297, 371 Week 4 Midterm; Business Valuation and Stock Valuation Week 5 Homework Problem10-8,10-9,11-2,11-3 Week 5 Project Case 11-7-New-Project Analysis Week 6 Homework Problem12-1,13-2,13-3,13-4 Week 6 Test Correct Answers Week 7 Homework Problem 16 - 1 onward 16 – 5 Week 7 Project; The financial statements of Lioi Steel Fabricators (Problem 2 and Problem 3 Final Excel)> Week 8 Final Exam (Answers with explanation) ---------------------------------------------------------------- FIN 515 Week 1 Homework assignment For more classes visit www.snaptutorial.com Week 1 Homework Assignment Complete the following graded homework assignment in a Word document named “FIN 515_Homework1_yourname." Show the details of your calculations/work in your answer to the problems. • Mini Case (p. 45) • Problems (p. 79) o 2-6 Statement of Retained Earnings o 2-7 Corporate Tax Liability (calculate tax liability and AT income) o 2-9 Corporate After-Tax Yield (muni, corp, PS) ---------------------------------------------------------------- FIN 515 Week 1-7 All Discussion Questions For more classes visit www.snaptutorial.com Week 1 DQ 1 Capital Formation Week 1 DQ 2 Financial......

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...FIN 515 Full Course Project Purchase here http://homeworkonestop.com/FIN%20515/fin-515-full-course-project Product Description Week 5 - ProjectComplete the Problem 11-7 "New-Project Analysis" (p. 460) and detail your work in the answer to each question in a Word document named "FIN515_W5_Project_yourname." The project is graded and worth 35 points. Submit your assignment to the Dropbox located on the silver tab at the top of this page. For instructions on how to use theDropbox, read these Step-by-Step Instructions or watch this Dropbox Tutorial. See Syllabus/"Due Dates for Assignments & Exams" for due date information. Week 7 - Project Complete the Problem 13-10 Corporate Valuation on pages 551-552 in a Word document named "FIN515_W7_Project_yourname". Show the details of your calculation/work in your answer to the Problem. Submit your project to the Dropbox located on the silver tab at the top of this page. For instructions on how to use theDropbox, read these Step-by-Step Instructions or watch this Dropbox Tutorial. See Syllabus/"Due Dates for Assignments & Exams" for due date information. FIN 515 Full Course Project Purchase here http://homeworkonestop.com/FIN%20515/fin-515-full-course-project Product Description Week 5 - ProjectComplete the Problem 11-7 "New-Project Analysis" (p. 460) and detail your work in the answer to each question in a Word document named "FIN515_W5_Project_yourname." The project is graded and......

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...FIN 515 Full Course Project Purchase here http://homeworkonestop.com/FIN%20515/fin-515-full-course-project Product Description Week 5 - ProjectComplete the Problem 11-7 "New-Project Analysis" (p. 460) and detail your work in the answer to each question in a Word document named "FIN515_W5_Project_yourname." The project is graded and worth 35 points. Submit your assignment to the Dropbox located on the silver tab at the top of this page. For instructions on how to use theDropbox, read these Step-by-Step Instructions or watch this Dropbox Tutorial. See Syllabus/"Due Dates for Assignments & Exams" for due date information. Week 7 - Project Complete the Problem 13-10 Corporate Valuation on pages 551-552 in a Word document named "FIN515_W7_Project_yourname". Show the details of your calculation/work in your answer to the Problem. Submit your project to the Dropbox located on the silver tab at the top of this page. For instructions on how to use theDropbox, read these Step-by-Step Instructions or watch this Dropbox Tutorial. See Syllabus/"Due Dates for Assignments & Exams" for due date information. FIN 515 Full Course Project Purchase here http://homeworkonestop.com/FIN%20515/fin-515-full-course-project Product Description Week 5 - ProjectComplete the Problem 11-7 "New-Project Analysis" (p. 460) and detail your work in the answer to each question in a Word document named "FIN515_W5_Project_yourname." The project is graded and worth 35......

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...FIN 515 Full Course Project Purchase here http://homeworkonestop.com/FIN%20515/fin-515-full-course-project Product Description Week 5 - ProjectComplete the Problem 11-7 "New-Project Analysis" (p. 460) and detail your work in the answer to each question in a Word document named "FIN515_W5_Project_yourname." The project is graded and worth 35 points. Submit your assignment to the Dropbox located on the silver tab at the top of this page. For instructions on how to use theDropbox, read these Step-by-Step Instructions or watch this Dropbox Tutorial. See Syllabus/"Due Dates for Assignments & Exams" for due date information. Week 7 - Project Complete the Problem 13-10 Corporate Valuation on pages 551-552 in a Word document named "FIN515_W7_Project_yourname". Show the details of your calculation/work in your answer to the Problem. Submit your project to the Dropbox located on the silver tab at the top of this page. For instructions on how to use theDropbox, read these Step-by-Step Instructions or watch this Dropbox Tutorial. See Syllabus/"Due Dates for Assignments & Exams" for due date information. FIN 515 Full Course Project Purchase here http://homeworkonestop.com/FIN%20515/fin-515-full-course-project Product Description Week 5 - ProjectComplete the Problem 11-7 "New-Project Analysis" (p. 460) and detail your work in the answer to each question in a Word document named "FIN515_W5_Project_yourname." The project is graded and worth 35......

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...FIN 515 Course Project 1 and 2 For more course tutorials visit www.fin515.com This Tutorial contains Week 3 Course Project (3 Sets) Week 6 Course Project (2 Sets) FIN 515 Entire Course For more course tutorials visit www.fin515.com This tutorial doesnt contain Final Exam Guide FIN 515 Week 1 DQ 1 Accounting Versus Finance FIN 515 Week 1 DQ 2 Financial Analysis FIN 515 Week 1 Quiz FIN 515 Week 1 Quiz (New) FIN 515 Week 1 Problem Set FIN 515 Week 2 DQ 1 TVM Pass-a-Problem FIN 515 Week 2 DQ 2 Assumptions of the TVM Model FIN 515 Week 2 Quiz FIN 515 Week 2 Problem Set FIN 515 Week 3 DQ 1 Examples of Capital Expenditure From Your Industry FIN 515 Week 3 DQ 2 Capital Budgeting Terms and Considerations FIN 515 Week 3 Course Project 1 (3 Papers) FIN 515 Week 3 Quiz FIN 515 Week 3 Problem Set FIN 515 Week 4 DQ 1 Market Value of a Stock Versus DDM Value FIN 515 Week 4 DQ 2 Differences in YTM of Real Life Bonds FIN 515 Week 4 Midterm FIN 515 Week 4 Problem Set FIN 515 Week 5 DQ 1 Calculating WACC for a Real Firm FIN 515 Week 5 DQ 2 Finding Stock Values for Real Stocks Using Beta and the SML FIN 515 Week 5 problem Set FIN 515 Week 5 Quiz FIN 515 Week 6 DQ 1 Examples of Real Agency Problems and How They Could Have Been Prevented FIN 515 Week 6 DQ 2 The Role of Financial Managers in Ethical Corporate Governance FIN 515 Week 6 Problem Set FIN 515 Week 6 Course Project 2 (2 Different Projects) FIN 515 Week 7 DQ 1 Industry Approaches to......

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