Q-2. (a) A company has a 12% WACC. One of its core divisions is considering two mutually exclusive investments with the net cash flows given below. The division’s beta is βDIV = 1.6, risk free rate is kRF = 7% and risk-premium on the market is RPM = 6% vi. What is each project’s profitability index? vii. What is difference between mutually exclusive and independent projects? viii. List the characteristics of a good capital budgeting technique. i

Q-2. (a) A company has a 12% WACC. One of its core divisions is considering two mutually exclusive investments with the net cash flows given below. The division’s beta is βDIV = 1.6, risk free rate is kRF = 7% and risk-premium on the market is RPM = 6% vi. What is each project’s profitability index? vii. What is difference between mutually exclusive and independent projects? viii. List the characteristics of a good capital budgeting technique. i

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 6P

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A company has a 13% WACC. One of its core divisions is considering two mutuallyexclusive investments with the net cash flows given below. The division’s beta is βDIV= 1.45, risk free rate is kRF = 6.8% and risk-premium on the market is RPM =7% Year Project A project B 0 -$1000 -$1000 1 $200 $800 2 $700 $600 3 $600 $250 4 $800 $150 5 -$300 $170 6 $250 $150 Given the information above, you are required to answer the followings:i. What is each project’s Payback and discounted payback periods and interpretthese numbers?ii. What is each project’s NPV?iii. What is each project’s IRR?
A company has a 13% WACC. One of its core divisions is considering two mutuallyexclusive investments with the net cash flows given below. The division’s beta is βDIV= 1.45, risk free rate is kRF = 6.8% and risk-premium on the market is RPM =7% Year Project A project B 0 -$1000 -$1000 1 $200 $800 2 $700 $600 3 $600 $250 4 $800 $150 5 -$300 $170 6 $250 $150 Given the information above, you are required to answer the followings:i. What is each project’s Payback and discounted payback periods and interpretthese numbers?ii. What is each project’s NPV?iii. What is each project’s IRR? iv. What is each project’s MIRR?v. From your answers to Parts a, b, c and d, which project would be selected?vi. What is each project’s profitability index?
A company has a 13% WACC. One of its core divisions is considering two mutuallyexclusive investments with the net cash flows given below. The division’s beta is βDIV= 1.45, risk free rate is kRF = 6.8% and risk-premium on the market is PRM =7% Year Project A Project B 0 -$1000 -$1000 1 $200 $800 2 $700 $600 3 $600 $250 4 $800 $150 5 -$300 $170 6 $250 $150 Given the information above, you are required to answer the followings:v. From your answers to Parts a, b, c and d, which project would be selected?vi. What is each project’s profitability index
Q-2. (a) A company has a 12% WACC. One of its core divisions is considering two mutually exclusive investments with the net cash flows given below. The division’s beta is βDIV = 1.6, risk free rate is kRF = 7% and risk-premium on the market is RPM = 6% Given the information above, you are required to answer the followings:i. What is each project’s Payback and discounted payback periods and interpret these numbers?ii. What is each project’s NPV?iii. What is each project’s IRR?iv. What is each project’s MIRR?v. From your answers to Parts a, b, c and d, which project would be selected?vi. What is each project’s profitability index?vii. What is difference between mutually exclusive and independent projects?viii. List the characteristics of a good capital budgeting technique.ix. Briefly explain the acceptance and rejection criteria for each technique regarding mutually exclusive and independent projects. (b) Kindly Provide brief answers to the following:i. What is the difference between…
Q-2. (a) A company has a 12% WACC. One of its core divisions is considering two mutually exclusive investments with the net cash flows given below. The division’s beta is βDIV = 1.6, risk free rate is kRF = 7% and risk-premium on the market is RPM = 6% i. What is each project’s Payback and discounted payback periods and interpret these numbers?ii. What is each project’s NPV?iii. What is each project’s IRR?iv. What is each project’s MIRR?v. From your answers to Parts a, b, c and d, which project would be selected?vi. What is each project’s profitability index?vii. What is difference between mutually exclusive and independent projects?viii. List the characteristics of a good capital budgeting technique.ix. Briefly explain the acceptance and rejection criteria for each technique regarding mutually exclusive and independent projects.
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