g. Calculate to the following for Pharmos considering its tax rate of 25 percent. i. Total Market Value for the Firm ii, After-tax cost of Loan iii. After-tax cost of Bonds iv. Cost of Equity v. Cost of Preferred Stock vi. Weighted Average Cost of Capital (WACC)
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Q5
From the attached please answer part G
a. Determine the initial outlay of the project.
b. Calculate the annual after-tax operating cash flow for Years 1 -5.
c. Determine the terminal year non-operating cash flow in year 5:
d. Taking into consideration all the information given, determine the
e. What is the estimated
f. Should the project be accepted based on the IRR?
g. Calculate to the following for Pharmos considering its tax rate of 25 percent.
i. Total Market Value for the Firm
ii, After-tax cost of Loan
iii. After-tax cost of Bonds
iv.
v. Cost of
vi. Weighted Average Cost of Capital (WACC)
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- Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.3. Pharmos Incorporated is a Pharmaceutical Company which is considering investing in a newproduction line of portable electrocardiogram (ECG) machines for its clients who suffer fromcardio vascular diseases. The company has to invest in equipment which cost $2,500,000 and fallswithin a MARCS depreciation of 5-years, and is expected to have a scrape value of $200,000 atthe end of the project. Other than the equipment, the company needs to increase its cash andcash equivalents by $100,000, increase the level of inventory by $30,000, increase accountsreceivable by $250,000 and increase account payable by $50,000 at the beginning of the project.Pharmos Incorporated expect the project to have a life of five years. The company would have topay for transportation and installation of the equipment which has an invoice price of $450,000.The company has already invested $75,000 in Research and Development and therefore expectsa positive impact on the demand for the new product line. Expected…3. Pharmos Incorporated is a Pharmaceutical Company which is considering investing in a newproduction line of portable electrocardiogram (ECG) machines for its clients who suffer fromcardio vascular diseases. The company has to invest in equipment which cost $2,500,000 and fallswithin a MARCS depreciation of 5-years, and is expected to have a scrape value of $200,000 atthe end of the project. Other than the equipment, the company needs to increase its cash andcash equivalents by $100,000, increase the level of inventory by $30,000, increase accountsreceivable by $250,000 and increase account payable by $50,000 at the beginning of the project.Pharmos Incorporated expect the project to have a life of five years. The company would have topay for transportation and installation of the equipment which has an invoice price of $450,000.The company has already invested $75,000 in Research and Development and therefore expectsa positive impact on the demand for the new product line. Expected…
- Pharmos Incorporated is a Pharmaceutical Company which is considering investing in a newproduction line of portable electrocardiogram (ECG) machines for its clients who suffer fromcardio vascular diseases. The company has to invest in equipment which cost $2,500,000 and fallswithin a MARCS depreciation of 5-years, and is expected to have a scrape value of $200,000 atthe end of the project. Other than the equipment, the company needs to increase its cash andcash equivalents by $100,000, increase the level of inventory by $30,000, increase accountsreceivable by $250,000 and increase account payable by $50,000 at the beginning of the project.Pharmos Incorporated expect the project to have a life of five years. The company would have topay for transportation and installation of the equipment which has an invoice price of $450,000.The company has already invested $75,000 in Research and Development and therefore expectsa positive impact on the demand for the new product line. Expected…Pharmos Incorporated is a Pharmaceutical Company which is considering investing in a newproduction line of portable electrocardiogram (ECG) machines for its clients who suffer fromcardio vascular diseases. The company has to invest in equipment which cost $2,500,000 and fallswithin a MARCS depreciation of 5-years, and is expected to have a scrape value of $200,000 atthe end of the project. Other than the equipment, the company needs to increase its cash andcash equivalents by $100,000, increase the level of inventory by $30,000, increase accountsreceivable by $250,000 and increase account payable by $50,000 at the beginning of the project.Pharmos Incorporated expect the project to have a life of five years. The company would have topay for transportation and installation of the equipment which has an invoice price of $450,000. The company has already invested $75,000 in Research and Development and therefore expectsa positive impact on the demand for the new product line. Expected…Pharmos Incorporated is a Pharmaceutical Company which is considering investing in a newproduction line of portable electrocardiogram (ECG) machines for its clients who suffer fromcardio vascular diseases. The company has to invest in equipment which cost $2,500,000 and fallswithin a MARCS depreciation of 5-years, and is expected to have a scrape value of $200,000 atthe end of the project. Other than the equipment, the company needs to increase its cash andcash equivalents by $100,000, increase the level of inventory by $30,000, increase accountsreceivable by $250,000 and increase account payable by $50,000 at the beginning of the project.Pharmos Incorporated expect the project to have a life of five years. The company would have topay for transportation and installation of the equipment which has an invoice price of $450,000.The company has already invested $75,000 in Research and Development and therefore expectsa positive impact on the demand for the new product line. Expected…
- 3. Pharmos Incorporated is a Pharmaceutical Company which is considering investing in a new production line of portable electrocardiogram (ECG) machines for its clients who suffer from cardio vascular diseases. The company has to invest in equipment which cost $2,500,000 and falls within a MARCS depreciation of 5-years, and is expected to have a scrape value of $200,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts receivable by $250,000 and increase account payable by $50,000 at the beginning of the project. Pharmos Incorporated expect the project to have a life of five years. The company would have to pay for transportation and installation of the equipment which has an invoice price of $450,000. The company has already invested $75,000 in Research and Development and therefore expects a positive impact on the demand for the new product line.…Pharmos Incorporated is a Pharmaceutical Company which is considering investing in a new production line of portable electrocardiogram (ECG) machines for its clients who suffer from cardio vascular diseases. The company has to invest in equipment which cost $2,500,000 and fallswithin a MARCS depreciation of 5-years, and is expected to have a scrape value of $200,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts receivable by $250,000 and increase account payable by $50,000 at the beginning of the project. Pharmos Incorporated expect the project to have a life of five years. The company would have to pay for transportation and installation of the equipment which has an invoice price of $450,000. The company has already invested $75,000 in Research and Development and therefore expects a positive impact on the demand for the new product line.…Pharmos Incorporated is a Pharmaceutical Company which is considering investing in a new production line of portable electrocardiogram (ECG) machines for its clients who suffer from cardio vascular diseases. The company has to invest in equipment which cost $2,500,000 and falls within a MARCS depreciation of 5-years, and is expected to have a scrape value of $200,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts receivable by $250,000 and increase account payable by $50,000 at the beginning of the project. Pharmos Incorporated expect the project to have a life of five years. The company would have to pay for transportation and installation of the equipment which has an invoice price of $450,000. The company has already invested $75,000 in Research and Development and therefore expects a positive impact on the demand for the new product line.…
- Pharmos Incorporated is a Pharmaceutical Company which is considering investing in a new production line of portable electrocardiogram (ECG) machines for its clients who suffer from cardio vascular diseases. The company has to invest in equipment which cost $2,500,000 and falls within a MARCS depreciation of 5-years, and is expected to have a scrape value of $200,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts receivable by $250,000 and increase account payable by $50,000 at the beginning of the project. Pharmos Incorporated expect the project to have a life of five years. The company would have to pay for transportation and installation of the equipment which has an invoice price of $450,000. The company has already invested $75,000 in Research and Development and therefore expects a positive impact on the demand for the new product line.…Pharmos Incorporated is a Pharmaceutical Company which is considering investing in a new production line of portable electrocardiogram (ECG) machines for its clients who suffer from cardio vascular diseases. The company has to invest in equipment which cost $2,500,000 and falls within a MARCS depreciation of 5-years, and is expected to have a scrape value of $200,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts receivable by $250,000 and increase account payable by $50,000 at the beginning of the project. Pharmos Incorporated expect the project to have a life of five years. The company would have to pay for transportation and installation of the equipment which has an invoice price of $450,000. The company has already invested $75,000 in Research and Development and therefore expects a positive impact on the demand for the new product line.…Pharmos Incorporated is a Pharmaceutical Company which is considering investing in a new production line of portable electrocardiogram (ECG) machines for its clients who suffer from cardio vascular diseases. The company has to invest in equipment which cost $2,500,000 and falls within a MARCS depreciation of 5-years, and is expected to have a scrape value of $200,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts receivable by $250,000 and increase account payable by $50,000 at the beginning of the project. Pharmos Incorporated expect the project to have a life of five years. The company would have to pay for transportation and installation of the equipment which has an invoice price of $450,000. The company has already invested $75,000 in Research and Development and therefore expects a positive impact on the demand for the new product line.…