A company has £6 million available and three possible projects, none of which are divisible: Project Investment at t0 NPV S £1.75m £0.56m T £2.50m £0.90m U £3.75m £1.30m Which projects should be undertaken in order to maximise shareholder wealth? A S and T B S and U C T and U D S, T and U
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5. A company has £6 million available and three possible projects, none of which are divisible:
|
Project |
Investment at t0 |
|
|
S |
£1.75m |
£0.56m |
|
T |
£2.50m |
£0.90m |
|
U |
£3.75m |
£1.30m |
Which projects should be undertaken in order to maximise shareholder wealth?
A S and T
B S and U
C T and U
D S, T and U
Step by step
Solved in 2 steps
- 2. A company has £1.5 million available in one or more of the following projects. Each project cannot be undertaken more than once but they are fully divisible. Project Investment at t0 NPV K £900,000 £135,000 L £900,000 £315,000 M £1,800,000 £600,000 To maximise shareholder wealth, which projects should be undertaken either fully or in part? A K, L and M B K and L C K and M D L and M3. A company has £5 million available and three possible projects, all of which are divisible: Project Investment at t0 NPV S £1.75m £0.56m T £2.50m £0.90m U £3.75m £1.30m What percentage of project T should be undertaken in order to maximise shareholder wealth? A 0% B 50% C 63% D 100%which of the two projects, Project O and Project Y, should the company pursue? Why? The firm's cost of capital has been determined at 9% Project O Project Y Initilal Investment P50,000 P48 000 Cash Flows 1 P20,000 30,000 2 25,000 35,000 3 15,000 40,000 4 20,000 10,000
- A firm is considering two mutually exclusive projects, X and Y, with the following cash flows: 0 1 2 3 4 Project X -$1,000 $90 $320 $430 $700 Project Y -$1,000 $1,000 $100 $45 $55 The projects are equally risky, and their WACC is 10%. What is the MIRR of the project that maximizes shareholder value? Do not round intermediate calculations. Round your answer to two decimal places.Finance A firm is considering two mutually exclusive projects, X and Y, with the following cash flows: 0 1 2 3 4 Project X -$1,000 $110 $280 $430 $750 Project Y -$1,000 $900 $110 $55 $50 The projects are equally risky, and their WACC is 9%. What is the MIRR of the project that maximizes shareholder value? Do not round intermediate calculations. Round your answer to two decimal places. %The management of Bhytyu Limited are considering several mutually exclusive projects with characteristics as shown in the following table. Project A B C D E Initial Cost ($ millions) 87 121 91 95 118 Accounting rate of return 13% 13% 15% 22% 11% Net Present Value ($ millions) 0 11 -1 7 10 Payback Period (Years) 3 5 7 3 5 Internal Rate of Return 9.5% 13.2% 8.0% 11.7% 12.5% Management’s stated goal is to maximise the wealth of the firm’s owners, and to be accepted any investment project must have a minimum investment yield of 10%. Required: Which of the above projects, if any, should be selected by management? Explain the rationale for your choice.
- A company has a 11% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows: 0 1 2 3 4 5 6 7 Project A -$300 -$387 -$193 -$100 $600 $600 $850 -$180 Project B -$405 $131 $131 $131 $131 $131 $131 $0 What is each project's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations. a. Project A: $ b. Project B: $ 3 What is each project's IRR? Round your answer to two decimal places. c. Project A:% d. Project B: % What is each project's MIRR? (Hint: Consider Period 7 as the end of Project B's life.) Round your answer to two decimal places. Do not round your intermediate calculations. e. Project A: % f. Project B: % g. From your answers to parts a-c, which project would be selected? h. If the WACC was 18%, which project would be selected? Construct NPV profiles for Projects A and B. Round your answers to the nearest cent.…Shaylee Corp has $2.00 million to invest in new projects. The company’s managers have presented a number of possible options that the board must prioritize. Information about the projects follows: Project A Project B Project C Project D Initial investment $ 434,000 $ 249,000 $ 739,000 $ 964,000 Present value of future cash flows 784,000 434,000 1,219,000 1,579,000 Required: 1. Is Shaylee able to invest in all of these projects simultaneously? 2-A. Calculate the profitability index for each project. 2-B. What is Shaylee’s order of preference based on the profitability index?Light Speed plc requires £2,000,000 to fund a new project. The firm expects to earn an EBIT of £250,000 p.a. in perpetuity. Assume the project does not affect the operating risk of the company. The company intends to finance the project by issuing £1 millions of 5% debentures at par and £1 million’s worth of ordinary shares. The current capital structure of the company is as follows: MV (£’000) Required Return (%) Debt (riskless) 4,000 5 Equity 16,000 15 The corporation tax rate is 25%. There is no time lag between taxable flows and the tax payments or receipts arising from those flows. Assume the required return on the market portfolio is 15% and the risk-free rate is 5%. Ignore income tax. Evaluate how the change of capital structure affects the company value and dividends.
- A company has a 13% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows: 0 1 2 3 4 5 6 7 Year 0 1 2 3 4 5 6 7 Project A -$300 -$387 -$193 -$100 $600 $600 $850 -$180 Project B -$405 $133 $133 $133 $133 $133 $133 $0 Open spreadsheet What is each project's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations. Project A: $ fill in the blank 2 Project B: $ fill in the blank 3 What is each project's IRR? Round your answer to two decimal places. Project A: fill in the blank 4% Project B: fill in the blank 5% What is each project's MIRR? (Hint: Consider Period 7 as the end of Project B's life.) Round your answer to two decimal places. Do not round your intermediate calculations. Project A: fill in the blank 6% Project B: fill in the blank 7%…ASAP!! IN 20 minns Q.F Corporation needs additional capital of Rs. 1b. Firm decided to develop the following capital structure. Security Market value required return Debt Rs. 20,000,000 6.5% Preferred stock Rs. 30,000,000 9% Common stock Rs. 50,000,000 12.5% Its corporate tax rate is 35 percent. What is the firms weighted average cost of capital? State the pecking order theory. How will your shuffle the above capital structure in order to follow the Pecking order theory. Calculate the firm’s weighted average cost of capital, if…Several investors are in the process of organizing a new company. The investors believe that P2,600,000 will be needed to finance the new company’s operation, and they are considering three methods of raising this amount of money. Method A: All P2,600,000 would be obtained through issue of common stock Method B: P 1,300,000 would be obtained through issue of common stock and the other P1,300,000 would be obtained through issue of P100 par value, 12% preferred stock. Method C: P 1,300,000 would be obtained through issue of common stock, and the other P 1,300,000 would be obtained through issue of bonds carrying an interest ate of 12%. The investors organizing the new company are confident that it can earn P520,000 each year before interest and taxes. The tax rate will be 30%. Required: 1. Assuming that the investors are correct in their earnings estimate, compute the net income that would go to the common stockholders under each of the three financing methods listed above. 2. Using the…
