Consider a project of the Cornell Haul Moving Company, the timing and size of th

Q: Consider a project of the Cornell Haul Moving Company, the timing and size of th

Correct option is > D. $67,163,445.12 Cost of equity is 10% hence, we would use discounting rate as 10% for calculating APV: APV = -990/(1+10%)^0 + 125/(1+10%)^1 + 225/(1+10%)^2 + 375/(1+10%)^3 + 500/(1+10%)^4 APV = -$ 67.16344512 million APV = -$67,163,445.12

ID: 2813832 • Letter: C

Question

Consider a project of the Cornell Haul Moving Company, the timing and size of the incremental after-tax cash flows (for an all-equity firm) are shown below in millions:

The firm's tax rate is 34 percent; the firm's bonds trade with a yield to maturity of 8 percent; the current and target debt-equity ratio is 3; if the firm were financed entirely with equity, the required return would be 10 percent.

Using the APV method, what is the value of this project to an all-equity firm?

Multiple Choice:

A. $46,502,288.10

B. $12,494,643.75

C. $36,580,767.55

D. $67,163,445.12

$990 +$125 +$225 +$375 +$500

Explanation / Answer

Correct option is > D. $67,163,445.12

Cost of equity is 10% hence, we would use discounting rate as 10% for calculating APV:

APV = -990/(1+10%)^0 + 125/(1+10%)^1 + 225/(1+10%)^2 + 375/(1+10%)^3 + 500/(1+10%)^4

APV = -$ 67.16344512 million

APV = -$67,163,445.12

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Consider a project of the Cornell Haul Moving Company, the timing and size of th

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