Cromwell's Interiors is considering a project that is equally as risky as the firm's current operations....

Cromwell's Interiors is considering a project that is equally as risky as the firm's current operations. The firm has a cost of equity of 15.4 percent and a pretax cost of debt of 8.9 percent. The debt-equity ratio is .46 and the tax rate is 21 percent. They are evaluating a project that will cost $60,000 and will cash inflows of $20,000, $30,000, and $40,000 respectively for the three years of the project. What is the net present value for this project?

Please show how you solve this!

A. $15,487

B. $9,707.82

C. $9,230.70

D. $6,859

E. $10,855.51

Expert Solution

jeff jeffy answered 1 year ago

Current Design Co. is considering two mutually exclusive, equally risky, and not repeatable projects, S and...

Current Design Co. is considering two mutually exclusive, equally risky, and not repeatable projects, S and L. Their cash flows are shown below. The CEO believes the IRR is the best selection criterion, while the CFO advocates the NPV. If the decision is made by choosing the project with the higher IRR rather than the one with the higher NPV, how much, if any, value will be forgone, i.e., what's the chosen NPV versus the maximum possible NPV? The required...

Day Interiors is considering a project with the following cash flows. What is the IRR of...

Day Interiors is considering a project with the following cash flows. What is the IRR of this project? Year Cash Flow 0 -$100,400 1 35,900 2 50,800 3 45,000

Markman & Sons is considering Projects S and L. These projects are mutually exclusive, equally risky,...

Markman & Sons is considering Projects S and L. These projects are mutually exclusive, equally risky, and not repeatable and their cash flows are shown below. If the decision is made by choosing the project with the higher IRR, how much value will be forgone? Note that under certain conditions choosing projects on the basis of the IRR will not cause any value to be lost because the project with the higher IRR will also have the higher NPV, i.e.,...

Consider project S and L, and their projected cashflows. Both projects are equally risky. (Assume cost...

Consider project S and L, and their projected cashflows. Both projects are equally risky. (Assume cost of capital is 10%) Expected after-tax cash flows Expected after-tax cash flows Year(t) Project S Project L 0(today) ($1,000) ($1,000) 1 500 100 2 400 300 3 300 400 4 100 600 Required; Find the NPV of each of the projects. Calculate the B/C ratio In each case state if we should accept the project or not and explain your answer.

S. Townsend Incorporated is considering two equally risky investments: 1. A $25,000 investment in a municipal...

S. Townsend Incorporated is considering two equally risky investments: 1. A $25,000 investment in a municipal bond that yields 5.65 percent 2. A $125,000 investment in a preferred stock that yields 6.1 percent What is the break-even corporate tax rate that makes the company indifferent between the two investments

. Douglas Controls, Inc. is considering two mutually exclusive, equally risky, and not repeatable projects, S...

. Douglas Controls, Inc. is considering two mutually exclusive, equally risky, and not repeatable projects, S and L. Their cash flows are shown below. The CEO believes the IRR is the best selection criterion, while the CFO advocates the NPV. If the decision is made by choosing the project with the higher IRR rather than the one with the higher NPV, how much, if any, value will be forgone, i.e., what's the chosen NPV versus the maximum possible NPV? Note...

A firm is considering an investment in a risky project that offers a 10 percent rate...

A firm is considering an investment in a risky project that offers a 10 percent rate of return. Alternative investments with the same level of risk offer a 15% rate of return. If the company makes the investment, their value will: Options increase. increase, and then decrease. stay the same. It cannot be determined what will happen to the firm value. decrease.

A firm is considering a $12,000 risky project. The expected cash flows are $3,000 in year...

A firm is considering a $12,000 risky project. The expected cash flows are $3,000 in year 1, $5,000 in year 2, and $7,000 in year 3. The firm's cost of capital is 11%, but the financial manager uses a hurdle rate of 9% for less-risky projects and 13% for riskier projects. Should the firm invest in this riskier project? No, the NPV is -$578.05 No, the NPV is -$120.85 Yes, the NPV is $578.05 Yes, the NPV is $120.85 Yes,...

You want to create a portfolio equally as risky as the market,and you have $1,000,000...

You want to create a portfolio equally as risky as the market, and you have $1,000,000 to invest. Given this information, fill in the rest of the following table:AssetInvestmentBetaStock A180,0000.85Stock B290,0001.40Stock C1.45Risk free-rate

You want to create a portfolio equally as risky as the market, and you have $800,000...

You want to create a portfolio equally as risky as the market, and you have $800,000 to invest. You've already allocated a portion of your wealth to Stock A and Stock B, and you've decided to also invest money in Stock C and the risk-free asset. Consider the following information: Asset Investment Beta Stock A $200,000 0.80 Stock B $160,000 1.30 Stock C ? 1.50 Risk-free asset ? ? Required: (a) How much should you invest in Stock...

Question