What is your best estimate of the weighted average cost of capital with an $100 million in borrowing ? ould invest those $100 million in a new project with a business risk (ie, asset r e current business risk of the company. This project has an expected before-ta nillion, and costs of $30 million a year in perpetuity. Assume that the annual n nditures are offset by the depreciation (5 million) and that annual NWC investi

What is your best estimate of the weighted average cost of capital with an $100 million in borrowing ? ould invest those $100 million in a new project with a business risk (ie, asset r e current business risk of the company. This project has an expected before-ta nillion, and costs of $30 million a year in perpetuity. Assume that the annual n nditures are offset by the depreciation (5 million) and that annual NWC investi

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 7P: Your division is considering two investment projects, each of which requires an up-front expenditure...

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The following are two projects a firm is considering: Project B Cash Flow Year 0 1 2 3 4 $2,939.01 Assuming that the relevant cost of capital for both projects is 11%, you should be able to determine the net present value (NPV) and the internal rate of return (IRR) for both project. Assume now that the firm has capital rationing, but knows that its true reinvestment rate is 20%, while its cost of capital is 11 percent. Given this information, determine the modified net present value (MNPV) for Project B. O $2.479.00 O $2.965.10 O$3.479.89 Project A Cash Flow O $4,084.05 ($10,000.00) ($11,000.00) $3,000.00 $5,000.00 $4,000.00 $4,000 00 $5,000.00 $4,000.00 $2,000.00 $2,000.00
If An investment costs $23,958 and will generate cash flow of $6,000 annually for five years. The firm's cost of capital is 10 percent? a. What is the investment's internal rate return? Based on the net present rate return, should the firm makeinvestment? b.What is the investment's net present value? Based on the net present value, should the firm make the investment?
A firm is considering a project that will generate perpetual after-tax cash flows of $16,500 per year beginning next year. The project has the same risk as the firm's overall operations and must be financed externally. Equity flotation costs 14 percent and debt issues cost 3 percent on an after-tax basis. The firm's D/E ratio is 0.5. What is the most the firm can pay for the project and still earn its required return? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar. Maximum the firm can pay
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A company is considering investing in a new project that requires an initial investment of $1,000,000. The projected cash flows from the project are as follows: Year 1: $300,000 Year 2: $400,000 Year 3: $500,000 Year 4: $600,000 The company's required rate of return for similar projects is 12%. What is the Net Present Value (NPV) of the project? What is the Internal Rate of Return (IRR) of the project? YOU MUST SHOW CALCULATIONS TO BACK UP YOUR SELECTION. -$100,000// 12% $250,000 // 10% $250,000 // 14% $350,000 // 14% $50,000 // %14
A firm is considering a project that will generate perpetual after-tax cash flows of $16,500 per year beginning next year. The project has the same risk as the firm's overall operations and must be financed externally. Equity flotation costs 14 percent and debt issues cost 3 percent on an after - tax basis. The firm's D/E ratio is 0.5. What is the most the firm can pay for the project and still earn its required return?
Your company is about to undertake a major investment project. The project will require an initial outlay of $150 million for capital expenditure plus another $20 million for working capital. You expect that the after-tax free cash flows for the project will be $20 million, $30 million, and $35 million for year 1, 2, and 3. After Year 3, the new project is expected to have reached its market potential, so the free cash flows are expected to grow at the rate of 2% per year indefinitely into the future. The cost of capital is 20%. What is the project’s NPV? a. – $16.6 million b. $4.4 million c. – $12.4 million d. $26.7 million e. $2.5 million
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An investment costs $23,958 and will generate cash flow of $6,000 annually for five years. The firm’s cost of capital is 10 percent. a.) What is the investment’s internal rate of return? Based on the internalrate of return, should the firm make the investment? b.) What is the investment’s net present value? Based on the net presentvalue, should the firm make the investment?
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The McNally Co. is considering an investment in a project that generates a profitability index of 1.3. The present value of the cash inflows on the project is P44,000. What is the net present value of this project?