Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
10th Edition
ISBN: 9781337902571
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Chapter 12, Problem 5P
OPTIMAL CAPTTAL BUDGET Marble Construction estimates that its WACC is 10% if equity comes from
| Project | Size | |
| A | $ 650,000 | 14.0% |
| B | 1,050,000 | 13.5 |
| C | 1,000,000 | 11.2 |
| D | 1,200,000 | 11.0 |
| E | 500,000 | 10.7 |
| F | 650,000 | 10.3 |
| G | 700,000 | 10.2 |
Assume that each of these projects is independent and that each is just as risky as the firm's existing assets. Which set of projects should be accepted, and what is the firm's optimal capital budget?
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OPTIMAL CAPITAL BUDGET Marble Construction estimates that its WACC is 10% if equitycomes from retained earnings. However, if the company issues new stock to raise newequity, it estimates that its WACC will rise to 10.8%. The company believes that it willexhaust its retained earnings at $2,500,000 of capital due to the number of highly profitableprojects available to the firm and its limited earnings. The company is considering thefollowing seven investment projects:
Assume that each of these projects is independent and that each is just as risky as the firm’sexisting assets. Which set of projects should be accepted, and what is the firm’s optimalcapital budget?
Capital BudgetingÂ
1. Knight Company has found that 30% of its sales are collected in the month of the sale and the remainder of the sales are collected in the next month. If sales are expected to be $100,000 in April, $120,000 in May, and $80,000 in June, what is the estimated amount of cash receipts for May?A. $114,000B. $106,000C. $92,000D. $108,000
2. In recent years, Princess Company has collected 20% of its sales in the month of the sale and the other 80% in the following month. During the first three months of 2002, Princess is anticipating sales of $350,000; $403,000; and $389,000, respectively. What is the amount of cash receipts budgeted for March?A. $301,200B. $360,600C. $400,200D. $391,800
OPTIMAL CAPITAL BUDGET Hampton Manufacturing estimates that its WACC is 12.5%. The company is considering the following 7 investment projects:
Project   Size   IRRA   $ 750,000    14.0%B   1,250,000   13.5C   1,250,000   13.2D   1,250,000   13.0E    750,000   12.7F    750,000   12.3G    750,000   12.2a. Assume that each of these projects is independent and that each is just as risky as the firm’s existing assets. Which set of projects should be accepted, and what is the firm’s optimal capital budget?
b. Now assume that Projects C and D are mutually exclusive. Project D has an NPV of $400,000, whereas Project C has an NPV of $350,000. Which set of projects should be accepted, and what is the firm’s optimal capital budget?
c. Ignore part b and assume that each of the projects is independent but that management decides to incorporate project risk differentials. Management judges Projects B, C, D, and E to have average risk, Project A to have high risk, and Projects F…
Chapter 12 Solutions
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
Ch. 12 - Prob. 1QCh. 12 - Prob. 2QCh. 12 - Explain why net operating working capital is...Ch. 12 - Prob. 4QCh. 12 - Prob. 5QCh. 12 - Prob. 6QCh. 12 - Prob. 7QCh. 12 - Prob. 8QCh. 12 - Prob. 9QCh. 12 - If you were the CFO of a company that had to...
Ch. 12 - Prob. 11QCh. 12 - REQUIRED INVESTMENT Tannen Industries is...Ch. 12 - Prob. 2PCh. 12 - AFTER-TAX SALVAGE VALUE Karsted Air Services is...Ch. 12 - REPLACEMENT ANALYSIS The Oviedo Company is...Ch. 12 - OPTIMAL CAPTTAL BUDGET Marble Construction...Ch. 12 - DEPRECIATION METHODS Charlene is evaluating a...Ch. 12 - SCENARIO ANALYSIS Huang Industries is considering...Ch. 12 - NEW PROJECT ANALYSIS You must evaluate the...Ch. 12 - NEW PROJECT ANALYSIS You must evaluate a proposal...Ch. 12 - Dauten is offered a replacement machine which has...Ch. 12 - REPLACEMENT ANALYSIS St. Johns River Shipyards is...Ch. 12 - PROJECT RISK ANALYSIS The Butler-Perkins Company...Ch. 12 - NEW PROJECT ANALYSIS Holmes Manufacturing is...Ch. 12 - REPLACEMENT ANALYSIS The Darlington Equipment...Ch. 12 - REPLACEMENT ANALYSIS The Bigbee Bottling Company...Ch. 12 - ABANDONMENT OPTION The Sorensen Supplies Company...Ch. 12 - OPTIMAL CAPITAL BUDGET Hampton Manufacturing...
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What is WACC-Weighted average cost of capital; Author: Learn to invest;https://www.youtube.com/watch?v=0inqw9cCJnM;License: Standard YouTube License, CC-BY