Task 1:The firm has provided the following financial data:Cost of equity is 13.5%.Net income is €2,500.The firm is considering the following investment projects:Size of project IRR of project€1,00012.0%€1,200€1,200€1,200€1,000●●ProjectABCDETarget capital structure is 50% debt and 50% equity.After-tax cost of debt is 8%.11.5%11.0%10.5%10.0%1) Determine the firm's weighted average cost of capital.2) Identify the project(s) that the firm should accept.3) Identify the total capital budget.4) If the firm follows a residual dividend policy, determine its payout ratio.

Weighted average cost of capital is the weighted cost of equity and weighted cost of debt and it is…

Answered: The firm has pro Target c After-tax ● ●…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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1. A company is evaluating two projects, A and B. The company's cost of capital has been determined to be 12% and the projects have the following investments and cash flow. Initial Investment Cash Flow 1 2 3 4 1. What is the net present value of Project A? B. P 13,725.40 A. P 9,637.75 Project A 100,000.00 40,000.00 50,000.00 20,000.00 20,000.00 2. What is the net present value of Project B? A. P 18,365.24 B. P 32,751.19 C.P 20,216.84 C. P 59,992.84 Project B 90,000.00 67,500.00 78,750.00 20,000.00 20,000.00 D. P 56,800.00 D. P 86,250.00
Following is information on two alternative investment projects being considered by Tiger Company. The company requires a 5% return from its investments. Project X1 Project X2 Initial investment $ (112,000) $ (184,000) Net cash flows in: Year 1 41,000 84,000 Year 2 51,500 74,000 Year 3 76,500 64,000 Compute the internal rate of return for each of the projects using Excel functions. Based on internal rate of return, indicate whether each project is acceptable. (Round your answers to 2 decimal places.)
Based on the information below, calculate the adjusted present value (APV), given that the project lifespan is 1 year and is being financed by 30% debt: Investment at t=0 € 33,000 Cashflow after yr1 € 39,600 Cost of capital (COC) 53% Cost of debt 43% Tax 33% a) The adjusted present value (APV) is: €-4325.31 b) The adjusted present value (APV) is: €-5307.69 c) The adjusted present value (APV) is: €-7117.65 d) The adjusted present value (APV) is: €-6135.26
A business has £18 million available for capital investment in the current year, but has the following five projects: Project Initial Investment £m NPV £m A 2.5 0.750 B 5.0 2.575 C 10.0 2.350 D 2.5 0.500 E 10.0 0.825 Which projects should the company choose? Projects can be scaled down (divisible) if necessary.
Quantitative Problem: Lane Industries is considering three independent projects, each of which requires a $3.3 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are presented here: Project H (high risk): IRR = 18% Cost of capital = 16% Cost of capital = 11% Cost of capital = 6% Project M (medium risk): Project L (low risk): IRR = 9% IRR = 7% Note that the projects' costs of capital vary because the projects have different levels of risk. The company's optimal capital structure calls for 40% debt and 60% common equity, and expects to have net income of $4,200,000. If Lane establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places. %
Project investment cost 5million, the IRR is 20%, cost of capital 16%, company capital struture 50% debt , 50% equity. Expected net income 7287500. what is the dividend pay out ratio
Quantitative Problem: Lane Industries is considering three independent projects, each of which requires a $2.7 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are presented here: Project H (high risk): Cost of capital = 14% IRR = 16% Project M (medium risk): Cost of capital = 9% IRR = 7% Project L (low risk): Cost of capital = 6% IRR = 7% Note that the projects' costs of capital vary because the projects have different levels of risk. The company's optimal capital structure calls for 40% debt and 60% common equity, and it expects to have net income of $3,300,000. If Lane establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places. %
Following is information on two alternative investment projects being considered by Tiger Company. The company requires a 4% return from its investments. Initial investment Net cash flows in: Year 1 Year 2 Year 3 Project X1 Project X2 IRR 21.00 % 12.00 % Project X1 $ (90,000) Yes Yes 30,000 40,500 65,500 Compute the internal rate of return for each of the projects using Excel functions. Based on internal rate of return, indicate whether each project is acceptable. Note: Round your answers to 2 decimal places. Acceptable? Project X2 $ (140,000) 67,500 57,500 47,500
Following is information on two alternative investment projects being considered by Tiger Company. The company requires a 5% return from its investments. Initial investment Net cash flows in: Year 1 Year 2 Year 3 Project X2 Project X1 $ (112,000) $ (184,000) 41,000 84,000 51,500 76,500 74,000 64,000 Compute the internal rate of return for each of the projects using Excel functions. Based on internal rate of return, indicate whether each project is acceptable. Note: Round your answers to 2 decimal places. Project X1 Project X2 IRR Acceptable? % Yes % Yes
Using the below informtion answer: 5.1 Payback Period of Project Tan (expressed in years, months and days). 5.2 Net Present Value of Project Tan.5.3 Accounting Rate of Return on average investment of Project Tan (expressed to two decimal places). INFORMATIONThe management of Mastiff Enterprises has a choice between two projects viz. Project Cos and Project Tan, each ofwhich requires an initial investment of R2 500 000. The following information is presented to you: PROJECT COS PROJECT TANNet Profit Net ProfitYear R1 130 000 80 0002 130 000 180 0003 130 000 120 0004 130 000 220 0005 130 000 50 000A scrap value of R100 000 is expected for Project Tan only. The required rate of return is 15%. Depreciation is calculatedusing the straight-line method.
The business units of contractor companies carry out investment expenditures for a capital of 80,015,000 the investment is expected to be generate a cash flow of 6,015,000 per year for 8 years, costs capital (cost of money) of 5% per year and an assumed interest rate of 10%. Pelase Count : a. Payback Period of Investment b. NPV c. Profitability Index d. IRR
Problem 1: Fitch Industries is in the process of choosing the better of two equal-risk, mutually exclusive capital expenditure projects-M and N. The relevant cash flows for each project are shown in the following table. The firm's cost of capital is 14%. Project M Project N Initial investmecnt (CF) 528,500 527,000 Year (t) Cash inflows (CF) $10,000 10,000 10,000 10,000 $11,000 2. 10,000 9,000 4. 8,000 a. Calculate each project's payback period. b. Calculate the net present value (NPV) for each project. c. Calculate the internal rate of return (IRR) for each project. d. Summarize the preferences dictated by each measure you calculated and indicate which project you would recommend. Explain why.

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The firm has pro Target c After-tax ● ● ● The firm is consi Project A CD B E Cost of e Net inco Size € € (th) € €1 €1 1) Determin 2) Identify th 3) Identify th