Principles of Corporate Finance
13th Edition
ISBN: 9781260465099
Author: BREALEY, Richard
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 5, Problem 17PS
Summary Introduction
To determine: The appropriate projects within the available budget of $1 million and the budget limit cost of the company in terms of its market value.
Profitability index is an index that shows the relationship between the costs and benefits of a given project by way of ratio. It is also called a benefit-cost ratio.
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In an effort to increase its customer base, a company set the project MARR at exactly the WACC. If equity capital costs 8% per year and
debt capital costs 12.5% for the project, what is the equity-debt percentage mix of capital required to make the WACC = 10%?
% equity and [
The mix is
% debt capital.
3. ABC is evaluating an investment in specialized equipment that cost $40 million and is projected to generate after-tax and pre-leverage cash flow of $8 million per year for seven years. The firm’s cost of capital is approximately 4.00%. Determine each of the following capital budgeting metrics and indicate whether and why the equipment should be purchased (or not) by each Reinvest cash flow for the MIRR model at the cost of capital.
Payback
NPV
IRR
MIRR
In an effort to increase its customer base, a company set the project MARR at exactly the WACC. If equity capital costs 9% per year and debt capital costs 11% for the project, what is the equity-debt percentage mix of capital required to make the WACC = 10%?
The mix is __ % equity and __ % debt capital.
Chapter 5 Solutions
Principles of Corporate Finance
Ch. 5 - (IRR) Check the IRRs for project F in Section 5-3.Ch. 5 - (IRR) What is the IRR of a project with the...Ch. 5 - (XIRR) What is the IRR of a project with the...Ch. 5 - Payback a. What is the payback period on each of...Ch. 5 - Payback Consider the following projects: a. If the...Ch. 5 - Prob. 3PSCh. 5 - IRR Write down the equation defining a projects...Ch. 5 - Prob. 5PSCh. 5 - IRR Calculate the IRR (or IRRs) for the following...Ch. 5 - IRR rule You have the chance to participate in a...
Ch. 5 - IRR rule Consider a project with the following...Ch. 5 - IRR rule Consider projects Alpha and Beta: The...Ch. 5 - IRR rule Consider the following two mutually...Ch. 5 - IRR rule Mr. Cyrus Clops, the president of Giant...Ch. 5 - Prob. 12PSCh. 5 - Investment criteria Consider the following two...Ch. 5 - Profitability index Look again at projects D and E...Ch. 5 - Capital rationing Suppose you have the following...Ch. 5 - Prob. 17PSCh. 5 - Prob. 18PS
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