Salwa is considering three competing Food and Beverage projects for investment. The projected cash flows of the three considered projects over a 6-year period are as listed in the table below. Regardless of the chosen project, she intends on financing it partially through debt and partially through equity. The debt financing share is 75% and has a cost of 12% / year. The equity share is retrieved from a bank account paying 4% / year interest. On top of its WACC, Salwa requires at least 2 percentage points of profit. Year 1 2 3 4 5 Project 1 ($) Project 2 ($) -5,000 1,500 2,500 3,500 1,000 1,000 900 -10,000 3,400 3,400 3,400 3,400 3,400 3,400 Project 3 ($) -6,500 3,800 3,200 2,300 1,600 700 200
Salwa is considering three competing Food and Beverage projects for investment. The projected cash flows of the three considered projects over a 6-year period are as listed in the table below. Regardless of the chosen project, she intends on financing it partially through debt and partially through equity. The debt financing share is 75% and has a cost of 12% / year. The equity share is retrieved from a bank account paying 4% / year interest. On top of its WACC, Salwa requires at least 2 percentage points of profit. Year 1 2 3 4 5 Project 1 ($) Project 2 ($) -5,000 1,500 2,500 3,500 1,000 1,000 900 -10,000 3,400 3,400 3,400 3,400 3,400 3,400 Project 3 ($) -6,500 3,800 3,200 2,300 1,600 700 200
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter17: Long-term Investment Analysis
Section: Chapter Questions
Problem 7E
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