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 flowProject AProject BProject CInitial Investment100000120,000130,000Year 1 Cash Inflows 3000036,50038000Year 2 cash inflows350004500020000Year 3 cash inflows400004000042000Year 4 cash inflows380003500045000Year 5 cash inflows200003000050000 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 dOCreate a spreadsheet to answer the following questions:Calculate the firm‘s cost of capital ( WACC)Calculate the payback period for each project.Calculate the net present value (NPV) of each project,Calculate the internal rate of return (IRR) for each project.Discuss any conflict in ranking that may exist between NPV and IRR.Summarize the preferences dictated by each measure, and indicate which project you would recommend. Explain why Question 3:Juhavna 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 thefollowing table.Project B120,00036,500Project C130,000Cash flowProject AInitial Investment100000Year 1 Cash InflowsYear 2 cash inflowsYear 3 cash inflows3000038000350004500020000400004000042000Year 4 cash inflows380003500045000Year 5 cash inflowsTaking into consideration that the cost of debt 7%, cost of preferred stock 12% and cost of newlcommon stock 15%. The weight of each source of capital are long term debt 30%, preferredstock 20% and common stock equity 50%.200003000050000TO doCreate 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 youwould recommend. Explain why

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Answered: Juhayna Food Industries is attempting…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 2PA

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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:

Calculate the firm‘s cost of capital ( WACC)
Calculate the payback period for each project.
Calculate the net present value (NPV) of each project,
Calculate the internal rate of return (IRR) for each project.
Discuss any conflict in ranking that may exist between NPV and IRR.
Summarize the preferences dictated by each measure, and indicate which project you would recommend. Explain why

Question 3:
Juhavna 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.
Project B
120,000
36,500
Project C
130,000
Cash flow
Project A
Initial Investment
100000
Year 1 Cash Inflows
Year 2 cash inflows
Year 3 cash inflows
30000
38000
35000
45000
20000
40000
40000
42000
Year 4 cash inflows
38000
35000
45000
Year 5 cash inflows
Taking into consideration that the cost of debt 7%, cost of preferred stock 12% and cost of newl
common stock 15%. The weight of each source of capital are long term debt 30%, preferred
stock 20% and common stock equity 50%.
20000
30000
50000
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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