FUND.OF FINANCIAL MGMT:CONCISE-MINDTAP
10th Edition
ISBN: 9781337910972
Author: Brigham
Publisher: CENGAGE L
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Textbook Question
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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Students have asked these similar questions
Project Selection Midwest water works estimates that is WACC is 10.5%. The company is considering the following capital budgeting prokects:
Project
Size
Rate of Return
A
$1 million
12.0%
B
2 Million
11.5
c
2 million
11.2
D
2 million
11.0
E
1 million
10.7
F
1 million
10.3
G
1 Million
10.2
Assume that each of these projects is just as risky as the firm's existing assests and that the firm may accept all the projects or only some of them which set of projects should be accepted?
Explain.
WACC AND OPTIMAL CAPITAL BUDGET
Adamson Corporation is considering four average-risk projects with the following costs and rates of return:
Project
Cost
Expected Rate of Return
1
$2,000
16.00%
2
3,000
15.00
3
5,000
13.75
4
2,000
12.50
The company estimates that it can issue debt at a rate of rd = 9%, and its tax rate is 40%. It can issue preferred stock that pays a constant dividend of $6 per year at $59 per share. Also, its common stock currently sells for $40 per share; the next expected dividend, D1, is $4.00; and the dividend is expected to grow at a constant rate of 7% per year. The target capital structure consists of 75% common stock, 15% debt, and 10% preferred stock.
What is the cost of each of the capital components? Round your answers to two decimal places. Do not round your intermediate calculations.Cost of debt %Cost of preferred stock %Cost of retained earnings %
What is Adamson's WACC? Round your answer to two decimal places. Do not round…
CAPITAL BUDGETING - MINI CASE STUDY
Fenton, Inc., has established a new strategic plan that calls for new capital investment. The company has a 9.8% required rate of return and an 8.3% cost of capital. Fenton currently has a return of 10% on its other investments. The proposed new investments have equal annual cash inflows expected. Management used a screening procedure of calculating a payback period for potential investments and annual cash flows, and the IRR for the 7 possible investments are shown. Each investment has a 6-year expected useful life and no salvage value.
Payback Period
IRR
Investment Cost
Project A1
4.2
10.5%
$130,000
Project B2
5.9
5.1%
67,000
Project C3
5.0
13.4%
83,000
Project D4
4.8
7.4%
61,000
Project E5
3.2
12.1%
115,000
Project F6
4.0
9.9%
65,000
Project G7
6.3
9.8%
76,000
Identify…
Chapter 12 Solutions
FUND.OF FINANCIAL MGMT:CONCISE-MINDTAP
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