QUESTIONS :9-9. (Cost of debt) Sincere Stationery Corporation needs to raise $50

QUESTIONS :9-9. (Cost of debt) Sincere Stationery Corporation needs to raise $500000 to improve its manufacturing plant. It has decided to issue a $1000 par value bond with a 14 percent annual coupon rate and a 10-year maturity. The investors require a 9 percent rate of return. a. Compute the market value of the bonds. b. What will the net price be if flotation costs are 10.5 percent of the market price? c. How many bonds will the firm have to issue to receive the needed funds? d. What is the firm s after-tax cost of debt if its average tax rate is 25 percent and its marginal tax rate is 34 percent?10-4. (NPV PI and IRR calculations) Fijisawa Inc. is considering a major expansion of its product line and has estimated the following cash flows associated with such an expansion. The initial outlay would be $1950000 and the project would generate incremental free cash flows of $450000 per year for 6 years. The appropriate required rate of return is 9 percent. a. Calculate the NPV. b. Calculate the PI. c. Calculate the IRR. d. Should this project be accepted?11-4. (Calculating free cash flows) Spartan Stores is expanding operations with the introduction of a new distribution center. Not only will sales increase but investment in inventory will decline due to increased efficiencies in getting inventory to showrooms. As a result of this new distribution center Spartan expects a change in EBIT of $900000. While inventory is expected to drop from $90000 to $70000 accounts receivables are expected to climb as a result of increased credit sales from $80000 to $110000. In addition accounts payable are expected to increase from $65000 to $80000. This project will also produce $300000 of depreciation per year and Spartan Stores is in the 34 percent marginal tax rate. What is the project s free cash flow in year 1?

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