The board have assessed that they require funding of £50,000,000 to invest in future projects. Discuss the factors the company would have to take into account when choosing between debt or equity as a form of long-term finance.
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The board have assessed that they require funding of £50,000,000 to invest in future projects. Discuss the factors the company would have to take into account when choosing between debt or equity as a form of long-term finance.
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- The company is in search of resources for a new investment of TL 3,000,000. As a financial manager, a) What kind of financing strategy would you suggest for the investment project in question?Regarding the proposed investments, XYZ INC. gathers the following data: a cash cost of 13,000, net annual cash flows of 45,000, and a present value factor of 5.40 rounded for cash inflows over a ten-year period. Find out all the relevant details that will be important when choosing an investment. Please let me know whether you think our firm should receive an investment based on the following information:Which of the following should be considered when a company estimates the cash flows used to analyze a proposed project? A. The company spent and expensed $10 million on a marketing study before its current analysis regarding whether to accept or reject the project. B. The company has spent and expensed $1 million on R&D associated with the new project. C. The firm would borrow all the money used to finance the new project, and the interest on this debt would be $1.5 million per year. D. Since the firm's director of capital budgeting spent some of her time last year to evaluate the new project, a portion of her salary for that year should be charged to the project's initial cost. E. The new project is expected to reduce sales of one of the company's existing products by 5%.
- ABC, Ltd. is considering the purchase of a new factory that will increase their capacity. They plan to pay for the investment with an amortized bank loan. The annual payments on the loan will be $963,000 per year, of which $363,000 of the first-year payment will be interest. How will the payment and interest be treated in the cash flows for capital budgeting?Which of the following should be considered when a company estimates the cash flows used to analyze a proposed project? Group of answer choices Since the firm's director of capital budgeting spent some of her time last year to evaluate the new project, a portion of her salary for that year should be charged to the project's initial cost. The company spent and expensed $10 million on a marketing study before its current analysis regarding whether to accept or reject the project. The firm would borrow all the money used to finance the new project, and the interest on this debt would be $1.5 million per year. The new project is expected to reduce sales of one of the company's existing products by 5%. The company has spent and expensed $1 million on R&D associated with the new project.XYZ, Co. is considering the purchase of a new building that will allow them to expand their market. They plan to pay for the investment with a bank loan. The interest payments on the loan will be $140,000 per year. How will this be treated in the cash flows for capital budgeting?
- The Emu Manufacturing Company is considering five independent investment opportunities. The required investment outlays and expected internal rates of return (IRR) for these investments are shown below. The firm's cost of capital is 14% and its target optimal capital structure is a debt ratio of 30%. Internally generated funds totalling $900,000 are available for all investment opportunities. (i) Based on the IRR method, which investment(s) should be accepted? (ii) If the company were to undertake all acceptable investments, what amount should be paid out in dividends according to the residual dividend policy? (iii) What would be the amount of external finance required if the company were to undertake all acceptable investments?As a Financial Analyst of Morgan Investments Co., you are going to make a business investment decision on which of the two possible investments the company should undertake. Both projects cost £200,000 with a rate of return of 12%. Below are the cash profits of the two projects: Year Project A Project B Profits (£) 1 36,000 37,300 2 42,000 40,000 3 56,000 56,000 4 44,000 51,000 5 35,000 39,650 6 32,500 42,500 7 66,000 80,000 Question one: Using NPV and IRR methods, appraise the two projects and advise the Financial Directors which of the projects is viable and why. Question two: Which of the methods is superior? Justify your answer.Bates Limited is considering investing in two capital investment projects. The expected capital expenditure and its related cash flows is given in the table below Details Period Project A (K) Project B (K) Cash Expenditure At outset 410,000 500,000 Cash inflow Year 1 140,000 170,000 Cash inflow Year 2 170,000 195,000 Cash inflow Year 3 135,000 180,000 Cash inflow Year 4 110,000 140,000 Your company considers its cost of capital to be 13%. For Project B, assessed as the riskier project of the two, a risk-adjusted cost of capital of 15% is considered appropriate. Base rate is presently 5% and the company pays a margin of 1%, giving an all in borrowing rate of 6%. Inflation is presently 3%. (a) Assess the two projects using the investment appraisal technique of internal rate of return (IRR). (b) State which project you would recommend to your board and explain in detail your reasons. (c) Besides the IRR rule’s scale…
- Plug N’ Play Inc. is considering financing a project as part of its regular capital budgeting process. The company wants to reevaluate its cost of capital for the upcoming projects. The company uses all the three components of capital for raising its fund; debt, preferred and common equity maintaining a target capital structure of 30%, 20%, and 50%. The company’s corporate tax is40%. Based on the above information, answer the following questions:a. If the company would be able to issue new 20-year debt with a cost of 10%, what is the after-tax component cost of the new debt?b. It can issue perpetual preferred stock at a price of $40 a share. The issue is expected to pay a constant annual dividend of $5.00 a share. The floatation cost on the issue is estimated to be 5 percent. What is the component cost of the new preferred stock?Perez Company is considering an investment of $30,485 that provides net cash flows of $9,000 annually for four years. (a) What is the internal rate of return of this investment? b) The hurdle rate is 6%. Should the company invest in this project on the basis of internal rate of return?To assist with evaluating potential capital projects, Carrium Insights Inc. is seeking to determine its actual Weighted Average Cost of Capital (WACC). Utilising information from the financial statements, together with current information, the Finance Manager has compiled the following information as it pertains to the company’s capital structure: Debt: Bonds outstanding has a face value of $568,000,currently selling at 95% of par. These bonds have 20 years left to maturityandacoupon rate of 7.55%.(Hint: you can use the lowest multiple of $1,000 for the YTM calculation only) Common stock: 21,000 shares of common stock outstanding with a market price of $63.00.The company just paida dividend of $6.00; for ease of computation, dividends are expected to grow by 5% annually. Preferred stock:The company intends to offer 15,000 shares of preferred stock to the public at a price of $25.00 per share. The intention is to pay an annual dividend of $3.00. Additional Information: ✓The Company’s…
