Juhayna Food Industries is attempting to select the best of three mutually exclusive projects. The initial investment and after-tax cash inflows associated with these projects are shown in the following table. Cash flow Project A Project B Project C Initial Investment 100000 120,000 130,000 Year 1 Cash Inflows 30000 36,500 38000 Year 2 cash inflows 35000 45000 20000 Year 3 cash inflows 40000 40000 42000 Year 4 cash inflows 38000 35000 45000 Year 5 cash inflows 20000 30000 50000 Taking into consideration that the cost of debt 7% , cost of preferred stock 12% and cost of new common stock 15%. The weight of each source of capital are long term debt 30% , preferred stock 20% and common stock equity 50%. TO dO Create a spreadsheet to answer the following questions: a) Calculate the firm‘s cost of capital ( WACC) b) Calculate the payback period for each project. c) Calculate the net present value (NPV) of each project, d) Calculate the internal rate of return (IRR) for each project. e) Discuss any conflict in ranking that may exist between NPV and IRR. f) Summarize the preferences dictated by each measure, and indicate which project you would recommend. Explain why
Juhayna Food Industries is attempting to select the best of three mutually exclusive projects. The initial investment and after-tax cash inflows associated with these projects are shown in the following table. Cash flow Project A Project B Project C Initial Investment 100000 120,000 130,000 Year 1 Cash Inflows 30000 36,500 38000 Year 2 cash inflows 35000 45000 20000 Year 3 cash inflows 40000 40000 42000 Year 4 cash inflows 38000 35000 45000 Year 5 cash inflows 20000 30000 50000 Taking into consideration that the cost of debt 7% , cost of preferred stock 12% and cost of new common stock 15%. The weight of each source of capital are long term debt 30% , preferred stock 20% and common stock equity 50%. TO dO Create a spreadsheet to answer the following questions: a) Calculate the firm‘s cost of capital ( WACC) b) Calculate the payback period for each project. c) Calculate the net present value (NPV) of each project, d) Calculate the internal rate of return (IRR) for each project. e) Discuss any conflict in ranking that may exist between NPV and IRR. f) Summarize the preferences dictated by each measure, and indicate which project you would recommend. Explain why
Financial And Managerial Accounting
15th Edition
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter26: Capital Investment Analysis
Section: Chapter Questions
Problem 2CMA: Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of...
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Juhayna Food Industries is attempting to select the best of three mutually exclusive projects.
The initial investment and after-tax cash inflows associated with these projects are shown in the following table.
Cash flow Project A Project B Project C
Initial Investment 100000 120,000 130,000
Year 1 Cash Inflows 30000 36,500 38000
Year 2 cash inflows 35000 45000 20000
Year 3 cash inflows 40000 40000 42000
Year 4 cash inflows 38000 35000 45000
Year 5 cash inflows 20000 30000 50000
Taking into consideration that the cost of debt 7% , cost of preferred stock 12% and cost of new common stock 15%. The weight of each source of capital are long term debt 30% , preferred stock 20% and common stock equity 50%.
TO dO
Create a spreadsheet to answer the following questions:
a) Calculate the firm‘s cost of capital ( WACC)
b) Calculate the payback period for each project.
c) Calculate the net present value (NPV) of each project,
d) Calculate the internal rate of return (IRR) for each project.
e) Discuss any conflict in ranking that may exist between NPV and IRR.
f) Summarize the preferences dictated by each measure, and indicate which project you would recommend. Explain why
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