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Levered Equity Cashflow Assignment Help Dissertation
Levered Equity Cashflow Assignment Help Dissertation
Order ID 53563633773 Type Essay Writer Level Masters Style APA Sources/References 4 Perfect Number of Pages to Order 5-10 Pages Descripti
Levered Equity Cashflow Assignment Help
A project has a 4 year lifespan. The project requires a capital expenditure of $100 in year 1. The expenditure has an accounting life of 2 years and will be depreciated on a straight-line basis during years 1 and 2. The project will be partially financed with a $90 interest-only bond floated at the beginning of year 1 such that the first interest payment will occur at the end of year 1. The bond has a 10% interest rate. The project will generate revenues of $100/year with cost of goods sold of $10 and SG&A expenses of $10. The tax rate is 35%.
1. What is the project’s net income in each year? (record your answers in the table below)
2. What are the project cash flow after-tax? (record your answers in the table below)
3. What are the levered equity cashflows? (record your answers in the table below)Year 1 2 3 4
Net IncomeProject Cashflow after-tax
Levered Equity Cashflow4. What is the project NPV at a discount rate of 12%?
A firm will be worth either $200 (Scenario 1; probability = 0.2), $300 (Scenario 2;probability = 0.5), or $600 (Scenario 3; probability = 0.3). The firm has a senior bond outstanding with face value $150 and a promised rate of 4%, and a junior convertible bond with face value $75, a promised rate of 9%, and if converted will have claim to 20% of the equity value. The remaining value is equity which is valued according to the CAPM with a Beta of 1.5 (expected equity premium is 8% and riskfree rate is 4%).
5. Create a payoff table showing the ending values in each scenario, the expected ending values and the present values of each investment (senior bond, junior bond, equity), as well as the firm.Firm Senior bond Convertible Bond Equity
Scenario 1 $200
Scenario 2 $300
Scenario 3 $600
Expected Ending value
Present value
Expected return6. What is the firm’s cost of equity? Hint- Cost of capital can be measured by expected return.
7. What is the firm’s equity weight?
8. What is the firm’s cost of the junior bonds?
9. What is the firm’s weight of the junior bonds?
10. What is the firm’s cost of the senior bonds?
11. What is the firm’s weight of the senior bonds?
- What is the firm’s weighted average cost of capital?
The firm from questions 5 through 12 above has identified a new project that would cost $60 today, and generate either $30, $35, or $150 in Scenario 1, Scenario 2, and Scenario 3, respectively.
13. What is the project’s NPV? Hint- use the weighted average cost of capital calculated above as a discount rate.14. Create a payoff table showing the ending values in each scenario, the expected ending values and the present values of each investment (senior bond, convertible bond, equity) if the project were financed by issuing additional senior bonds with face value $62.40. Assume the beta of the equity would increase to 1.625, causing the expected equity return to change. As long as the senior bonds are riskless, the expected return should remain at 4%. Hint- the additional senior bonds would have a value of $62.40 at maturity, and would sell for a discount today. Hint- The cost of the firm’s capital should not have changed (this value could be used to discount the expected ending firm value).
Firm Senior bond Convertible Bond Equity
Scenario 1 $230 $212.40
Scenario 2 $335 $212.40
Scenario 3 $750 $212.40Expected Ending value
Present value
Expected return15. Calculate the firm’s weighted average cost of capital with the new project.
16. Consider the present values of each investment with the project (from Question 14) and without (from Question 5). Identify any investments that benefit from the new project, and any investment that are damaged by the new investment
Levered Equity Cashflow Assignment Help Dissertation
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Elements of the required response may also be lacking. 40 points out of 50: The essay illustrates solid understanding of the relevant material by correctly addressing most of the relevant content; identifying and explaining most of the key concepts/ideas; using correct terminology; explaining the reasoning behind most of the key points/claims; and/or where necessary or useful, substantiating some points with accurate examples. The answer is complete. 50 points: The essay illustrates exemplary understanding of the relevant material by thoroughly and correctly addressing the relevant content; identifying and explaining all of the key concepts/ideas; using correct terminology explaining the reasoning behind key points/claims and substantiating, as necessary/useful, points with several accurate and illuminating examples. No aspects of the required answer are missing. Use of Sources (worth a maximum of 20% of the total points). 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APA 6th Edition is used with only a few minor errors. There are minor errors in reference and/or citations. And/or there is some use of questionable sources. 20 points: Credible scholarly sources are used to give compelling evidence to support claims and are clearly and fairly represented. APA 6th Edition format is used accurately and consistently. The student uses above the maximum required references in the development of the assignment. Grammar (worth maximum of 20% of total points) Zero points: Student failed to submit the final paper. 5 points out of 20: The paper does not communicate ideas/points clearly due to inappropriate use of terminology and vague language; thoughts and sentences are disjointed or incomprehensible; organization lacking; and/or numerous grammatical, spelling/punctuation errors 10 points out 20: The paper is often unclear and difficult to follow due to some inappropriate terminology and/or vague language; ideas may be fragmented, wandering and/or repetitive; poor organization; and/or some grammatical, spelling, punctuation errors 15 points out of 20: The paper is mostly clear as a result of appropriate use of terminology and minimal vagueness; no tangents and no repetition; fairly good organization; almost perfect grammar, spelling, punctuation, and word usage. 20 points: The paper is clear, concise, and a pleasure to read as a result of appropriate and precise use of terminology; total coherence of thoughts and presentation and logical organization; and the essay is error free. 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The paper has slight errors within the paper. This can include small errors or omissions with the cover page, abstract, page number, and headers. There could be also slight formatting issues with the document spacing or the font Additionally the paper might slightly exceed or undershoot the specific number of required written pages for the assignment. 10 points: Student provides a high-caliber, formatted paper. This includes an APA 6th edition cover page, abstract, page number, headers and is double spaced in 12’ Times Roman Font. Additionally, the paper conforms to the specific number of required written pages and neither goes over or under the specified length of the paper.
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