Can someone explain this to me please expected, question, studying, someone, company

cyber21

prob easy and stupid question and maybe cuz its getting late for me and iv been studying all day... but some reason cant figure out the simple math for calc the weights on debt and equity


thanks for the help




A company is considering a $10,000 project that will last 5 years.

* Annual after tax cash flows are expected to be $3,000
* Target debt/equity ratio is 0.4
* Cost of equity is 12%
* Cost of debt is 6%
* Tax rate 34%

What is the project's net present value (NPV)?

A)
+$1,460.
B)
-$1,460.
C)
$+1,245

Click for Answer and Explanation

First, calculate the weights for debt and equity

wd + we = 1

we = 1 − wd

wd / we = 0.40

wd = 0.40

scr879

another...

A firm is considering a $5,000 project that will generate an annual cash flow of $1,000 for the next 8 years. The firm has the following financial data:

* Debt/equity ratio is 50%.
* Cost of equity capital is 15%.
* Cost of new debt is 9%.
* Tax rate is 33%.

Determine the project's net present value (NPV) and whether or not to accept it.
NPV Accept / Reject

A)

-$33 Reject
B)

+$33 Accept
C)

+$4,968 Accept

Click for Answer and Explanation

First, calculate the weights for debt and equity

d + we = 1

d = 0.50We

e + We = 1

d = 0.333, we = 0.667

koba

hi,
1-
a) the outflow is 10000 so it will be -10000 at the start
b) this is important to understand.......
target D\E is 0.4 which means means that in target Capital structure
Debt will be 0.4 if equity is 1
so total it, the total capital will be 1.4
debt's portion will be 0.4/1.4
and equity's portion will be 1/1.4
now calculate Kd= 6% (1-.34)= 3.96
Ke= 12
WACC= 3.96* (0.4/1.4) + (12 (1/1.4)=9.702 app
discounting project with it we get
1459.46
so A is my answer

Beatnik

thanks man

dontknow1987

no problem pleasure'z mine