Question

In: Finance

A company project has an initial cost of $40,000, expected net cash flows of $9,000 per...

A company project has an initial cost of $40,000, expected net cash flows of $9,000 per year for 7 years. The company has a target capital structure of 10% short term debt at an interest rate of 6.0%, 50% long term debt at an interest rate of 9.0%, and 40% equity with a cost of 18%. The company’s tax rate is 28%.

a. What is the WACC to be used when evaluating this project?

b. What is the projects NPV, IRR, PB, DPB?

c. What is the projects PI?

Solutions

Expert Solution

a. WACC =Weight of Short term debt *Cost of Debt*(1-tax rate)+Weight of long term debt *Cost of Debt*(1-tax rate)+Weight of equity*Cost of equity =10%*6%*(1-28%)+50%*9%*(1-28%)+40%*18% =10.872%

b. NPV =PV of Cash Flows-Initial Investment =9000*((1-(1+10.872%)^-7)/10.872%)-40000 =2585.73

Using excel to calculate IRR,PB

A B C D E F G H I J
Year 0.00 1 2 3 4 5 6 7 8 9
Project A -40000.00 9000 9000 9000 9000 9000 9000 9000 9000 9000
Cumulative Cash flow -40000.00 -$31,000.00 -$22,000.00 -$13,000.00 -$4,000.00 $5,000.00 $14,000.00 $23,000.00 $32,000.00 $41,000.00
IRR 17.04% IRR(A2:J2)
Payback Period $4.44 4+4000/9000
A B C D E F G H I J
Year 0.00 1 2 3 4 5 6 7 8 9
Project A -40000.00 9000 9000 9000 9000 9000 9000 9000 9000 9000
Discounted Cash flow -40000.00 8117.47 7321.48 6603.54 5956.00 5371.96 4845.19 4370.08 3941.55 3555.05
Cumulative Cash flow -40000.00 -$31,882.53 -$24,561.05 -$17,957.51 -$12,001.51 -$6,629.54 -$1,784.35 $2,585.73 $6,527.28 $10,082.33
Discounted Payback Period $6.41 (6+1784.35/4370.08)

c. PI =1+NPV/Investment =1+2585.73/40000 =1.06

jeff jeffy answered 6 months ago
Next > < Previous

Related Solutions

A project has an initial cost of $40,000, expected net cash flows of $9,000 per year...
A project has an initial cost of $40,000, expected net cash flows of $9,000 per year for 7 years, and a cost of capital of 11% Calculate in excel NPV, IRR, PB, DPB?
A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year...
A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 7 years, and a cost of capital of 11%. What is the project’s NPV? (Hint: Begin by constructing a time line.) (10-2) Refer to Problem 10-1. What is the project’s IRR? (10-3) Refer to Problem 10-1. What is the project’s MIRR? (10-4) Refer to Problem 10-1. What is the project’s PI? (10-5) Refer to Problem 10-1. What is the project’s payback period? (10-6)...
A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year...
A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 9 years, and a cost of capital of 11%. What is the project's discounted payback period? Round your answer to two decimal places.
A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year...
A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 7 years, and a cost of capital of 11%. What is the project’s payback period? (NOT discounted payback period) Explain
A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year...
A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 7 years, and a cost of capital of 11%. What is the project’s NPV? (Hint: Begin by constructing a time line.) Financial Calculator: CFo=-40000, CF1=9000, F1=7, NPV I=11, CPT NPV=2409.7664 NPV = $2,409.77 What is the project’s IRR? Financial Calculator: CFo=-40000, CF1=9000, F1=7, NPV I=11, CPT NPV=2409.7664, CPT IRR=12.842 IRR = 12.84% What is the project’s MIRR? What is the project’s PI? What...
Discounted Payback A project has an initial cost of $40,000, expected net cash inflows of $9,000...
Discounted Payback A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 9 years, and a cost of capital of 11%. What is the project's discounted payback period? Round your answer to two decimal places. years
A project has an initial cost of $40,000, expected net cash inflows of $9,000 pr year...
A project has an initial cost of $40,000, expected net cash inflows of $9,000 pr year for 7 years, and cost of capital of 11%. a) What is the project's NPV? (Hint: Begin by constructing a time line.) b) What is the project's IRR? c) What is the project's MIRR? d) What is the project's PI? e) What is the project's payback period? f) What is the project's discounted payback period? Show your steps of solving the problems.
A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 9 years, and a cost of capital of 11%.
Problem 10-6Discounted PaybackA project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 9 years, and a cost of capital of 11%. What is the project's discounted payback period? Round your answer to two decimal places.years
A project has an initial cost of $63,000, expected net cash inflows of $9,000 per year...
A project has an initial cost of $63,000, expected net cash inflows of $9,000 per year for 11 years, and a cost of capital of 12%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal places.
A project has an initial cost of $47,325, expected net cash inflows of $9,000 per year...
A project has an initial cost of $47,325, expected net cash inflows of $9,000 per year for 11 years, and a cost of capital of 8%. What is the project's NPV? (Hint: Begin by constructing a time line.) Do not round your intermediate calculations. Round your answer to the nearest cent. Net Salvage Value Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $19 million, of which 85% has been depreciated. The used equipment...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT